Definition
A Fixed Deposit is an instrument offered by banks or financial institutions where a person can deposit a lump-sum amount for a fixed period and earn a fixed interest rate.
Case Study
Anju has ₹50,000 and wants to invest it in a fixed deposit for 3 years.
Principal Amount: ₹50,000
Interest Rate: 7% per year
Tenure: 3 years
Interest for One Year: ₹3,500
Outcome
Principal: ₹50,000
Interest Earned: ₹1,252
Total Amount After 3 Years: ₹61,252
Anju’s money was kept securely in the FD while also earning a fixed return on a compounded basis.
Historical Reference
The broad concept of fixed-term deposits dates back to medieval Italy. Wealthy merchants would deposit large sums of money with bankers for safekeeping over a specific period in exchange for a fixed interest rate.