How Does The Lock-in Of Fixed Deposit Work?

To secure a better future, we work hard all our lives with a thought that all we earn in due course of time should be adequate for the expenditures in the future. On the other hand, we fail to realise that there are factors like inflation, taxes, and medical emergencies that can take a major chunk of our savings and leave us in a financial crunch. To keep yourself prepared for the worst as well as financially funded, you need to invest your money in sources that can provide you satisfactory gains.

There are many investment sources in the market that can benefit you in the long run, but you need to be wise while choosing the perfect investment source for you. If you are well versed with the ups and downs of the market, you can opt to invest in the sources like mutual funds and equity shares. If you are an amateur investor and have very little knowledge about the market, it is recommended that you choose to invest in the sources that offer risk-averse returns such as Fixed Deposits.

Why Fixed Deposits?

Fixed Deposits are considered as one of the safest investment sources in India. Fixed Deposits are known for their guaranteed returns and investment safety that makes it ideal for the amateur investors. The returns that you gain from FDs are dependent on the interest rate offered by the service provider. FDs can be used as a tool for tax saving, according to the Section 80C of the Income Tax Act, any payment made towards premium of insurance and deposits in Fixed Deposits  can be availed for tax returns.

With so many benefits that sound too good to be true an investor can easily be allured for investing in FDs; but before investing, you need to know about the lock-in period.

What is a Lock-in Period?

A lock-in period is a specific duration of days, months or years during which the investor cannot withdraw the invested capital. If the investor wishes to withdraw the invested capital during the lock-in period, here are the consequences that he or she might face:

  1. Penalty: Some service providers tend to charge penalties on the earned interest amount or the deposited capital if the investor decides to withdraw the invested capital during the lock-in period.
  2. No returns: Other service providers claim that the interest compounding cycle on FDs starts after the end of the lock-in period. Due to which they refuse to pay any extra amount other than the invested capital to the investor.

The lock-in period can be beneficial in a way; some service providers tend to keep the interest rate constant during the lock-in period, irrespective of the fluctuations in the market. So you can use the lock-in period to gain the maximum benefit of the ongoing interest rate even if the market rate lowers down in future.

Fixed deposit is the best way to invest your savings for a better future and FD investments have been beneficial for many people, but if you want to get better returns with flexible policies, you should try investing in FDs offered by the NBFCs.

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