When investors think of low-risk investment avenues, fixed deposits are the first to come to mind. However, this traditional savings instrument usually comes with a lock-in period that is inconvenient for investors who may need to access their funds before the maturity date. A flexi FD solves this issue.
A flexi fixed deposit is a term deposit scheme that combines the interest-earning potential of a regular FD with the liquidity benefits of a savings or current account. With a flexi fixed deposit, you can make easy withdrawals from the FD account without closing it. The remaining sum in the account continues to grow with the high flexi fixed deposit interest rates. Thus, instead of wondering how to break your FD before maturity, you can make penalty-free partial withdrawals from the account to meet your emergencies or liquidity requirements.
Features and benefits of flexible fixed deposits (FD)
1. Flexible tenures
Flexi FDs offer you the freedom to choose an investment duration that meets your financial needs and objectives. You can invest in flexi fixed deposits to meet short-term goals like saving up for a vacation or long-term goals like retirement planning.
2. Attractive interest rates
Flexi fixed deposit interest rates are higher than regular savings bank accounts. Better returns on the investment helps you grow your corpus and meet your financial goals faster.
3. Premature withdrawal
Flexi fixed deposit schemes are preferred for their high liquidity quotient. In the event of a financial emergency, you can withdraw a part of your saved funds without dissolving the FD. After a partial withdrawal, the remaining funds in your FD account keep earning interest.
4. Minimum investment amount
With a flexi FD scheme, you have the liberty to choose how much you wish to invest. You can assess your liquidity needs and financial goals to decide on the right deposit amount. However, different banks have varying deposit criteria, so it is best to examine the bank’s policies before investing.
5. Auto-renewal
Most banks offer an auto-renewal option with flexi FD schemes to help make the renewal process easy and hassle-free. In other words, you do not have to remember the maturity date of the FD account to renew it since the bank automatically renews it.
6. Loan facility
You can use your flexi fixed deposit account as collateral to avail of a short-term loan from the bank. Usually, banks allow depositors to borrow up to 95% of the funds in their FD account. The interest rates on these loans are slightly higher than the flexi FD interest rate but much lower than personal loans. However, you should review the bank’s policies and charges carefully before availing of this credit facility.
7. Simplified account opening
Opening a flexi fixed deposit account is hassle-free and easy. Most banks offer a simple and transparent process that is completely digitised. So, you can open a flexi fixed deposit without visiting a physical bank branch.
Flexi fixed deposit interest rates
Some of the top public and private sector banks in India offer flexi FD schemes to customers. For instance, a bank offers an auto fixed deposit scheme that links your savings account to the FD account. Any balance over Rs. 25,000 in your savings account is automatically transferred in multiples of Rs. 5,000 to the linked FD account. The saved funds attract higher flexi fixed deposit interest rates instead of lying idle in your savings account. You can choose from a long-term 5-year auto FD or a short-term one with a minimum duration of 6 months.
Similarly, another bank offers a savings flexi deposit scheme that combines the liquidity of a savings account and the higher flexi fixed deposit interest rates for better yields. Any surplus funds over the minimum balance of Rs. 50,000 in the savings account are transferred to the linked FD account in multiples of Rs. 10,000.
As an investor, you should know that flexi FD interest rates tend to be lower than those of traditional FDs. Depending on the bank’s policies, interest on flexi deposits may be calculated on a daily or monthly basis on the amount present in the FD account. In other words, the more you save and the longer you hold the funds in the flexi FD account, the greater your yields will be.
Difference between flexi fixed deposits and regular fixed deposits
Feature |
Flexi Fixed Deposit |
Regular Fixed Deposit |
Liquidity |
Allows deposits and withdrawals from the linked savings account as needed, offering high liquidity without penalties. |
Funds are locked in for a predetermined tenure; premature withdrawals may incur penalties, and additional deposits are not permitted during the tenure. |
Investment flexibility |
Provides the flexibility to adjust investment amounts and durations, accommodating varying financial needs. |
Requires a fixed investment amount and tenure, with limited flexibility once the deposit is made. |
Premature withdrawal |
Permits partial withdrawals without penalties, enhancing accessibility to funds. |
Premature withdrawals are allowed but typically incur interest penalties ranging from 0.50% to 1%. |
Interest rates |
Offers competitive interest rates, though they may be slightly lower than those of regular fixed deposits due to the added flexibility. |
Generally, provides higher interest rates, reflecting the commitment to a fixed tenure without early access. |
Use as contingency fund |
Suitable for serving as a contingency fund, allowing easy access to savings during emergencies without compromising on interest earnings. |
Less ideal for emergency funds due to withdrawal penalties and fixed terms, making access to funds more restrictive. |
Also Read: Download your Fixed Deposit receipt
Disadvantages of flexi fixed deposits
While Flexi Fixed Deposits (flexi FDs) offer enhanced liquidity and flexibility, they come with certain drawbacks:
- Lower interest rates: Flexi FDs typically provide lower interest rates compared to regular fixed deposits, as the added flexibility allows for partial withdrawals and deposits.
- Premature withdrawal penalties: Although flexi FDs permit early withdrawals, some banks may impose penalties or reduce interest rates for such actions, potentially diminishing overall returns.
- Complexity in management: The dynamic nature of flexi FDs, with frequent deposits and withdrawals, can complicate tracking and managing investments, especially for those preferring straightforward financial products.
- Potential for reduced returns: Frequent withdrawals from flexi FDs can lead to a lower effective interest rate on the remaining balance, impacting the total returns compared to a regular fixed deposit.
Conclusion
Flexi FD schemes are convenient options for those who wish to balance liquidity with high interest earnings. These safe investment options offer investors the perks of easy withdrawals and flexible investment tenures. This convenience and easy accessibility make flexi fixed deposits a preferred choice, even if they offer marginally lower interest rates than regular FDs.
That said, flexi FDs are better suited for investors with short-term goals. Investing in a corporate FD may be better if you want to create a larger corpus for the long term. With a Bajaj Finance FD, you can grow your funds at up to 8.85% p.a. You can also enjoy easy liquidity benefits with flexible tenures, customisable payout options, and easy premature withdrawals.
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