What is a Linked FD

What is a Linked FD and Should you Invest in it?

If you want better interest than what your savings account is offering you, shift your attention to fixed deposits. Here, you can choose from company fixed deposits, as well as linked fixed deposits that are tied to your savings account.

Read on to find out what linked fixed deposits are and whether they are worth the investment.

What is a linked Fixed Deposit and How Does it Work?

A savings account generates poor returns and so, you can choose a linked FD, which is a fixed deposit that is tied to your savings account. Here, you can use your savings account to generate marginally better yield by turning the surplus amount into a investment. You can do this while enjoying the same liquidity.

When the amount in your savings account crosses a pre-defined limit, the excess amount is automatically put into an FD. These linked FDs mature in a year. But, don’t confuse linked FDs to a flexi deposit. In the latter, when the balance in your savings account drops below a certain level, you can use funds from a fixed deposit in your name to fill the gap. So, it is the opposite of a linked fixed deposit.

Benefits of Having a Linked Fixed Deposit:

Liquidity: A linked FD is an extension of your savings account and so, it offers you better liquidity than a conventional FD.

Higher Interest: As compared to a savings account, you can earn higher interest with a linked fixed deposit.

Convenience: With a linked FD, you do not need to open a separate fixed deposit as it is automatically created for you.

When you pick a Fixed Deposit (FD) from NBFCs, you can get access to this high rate of interest along with the option to manage your FD online and incredible stability backed by CRISIL and ICRA. Besides, a linked fixed deposit is a short-term, one-year fixed deposit. This means that it doesn’t allow your funds to benefit from compounding interest, which is a given when you pick a cumulative fixed deposit for a tenor that is longer than a year.

Also, you can also pick a non-cumulative interest option when you opt for a company fixed deposit. This is an excellent benefit if you need periodic payment monthly, quarterly or semi-annually.

Besides this, you may have to bear a service charge or transaction fee every time the excess amount in your savings account is withdrawn. Also, the bank decides the amount that you must retain in your account, as well as the swipe out amount. If this doesn’t bode well with you, you can’t make use of this option.

So, it makes most sense to invest in a company fixed deposit as it gives you greater control and flexibility with regards to the tenor, the minimum amount as well as periodic payouts. Besides, it offers higher interest too.

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