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What is a flexi fixed deposit?
A flexi fixed deposit is a type of fixed deposit account that offers the flexibility of withdrawing funds from the account without breaking the entire deposit.
This is distinct from the fixed deposit with an auto sweep facility as discussed here.
Here you have to open a fixed deposit manually and link it to your savings account. While opening the flexi fixed deposit account, you should deposit a lump sum amount like any regular fixed deposit.
In a flexi fixed deposit account, you can withdraw funds from your account in part or totally, as per requirement, without closing the entire deposit. The withdrawn amount continues to earn interest at the same rate as the original fixed deposit.
For instance, let’s say you have opened a flexi fixed deposit account with a deposit of ₹50,000 for a period of one year at an interest rate of 6%. After 6 months, you realise you need ₹20,000 for an unexpected expense.
In a regular fixed deposit, you would have to break the entire deposit to withdraw the amount required, thereby losing out on the interest rate earned until then. However, with a flexi fixed deposit, you can withdraw the needed ₹20,000 without breaking the entire deposit.
In this scenario, you would still earn interest on the remaining deposit amount of ₹30,000 at the same interest rate of 6% until the maturity of the fixed deposit. The withdrawn amount of ₹20,000 would not earn any further interest as it is no longer a part of the fixed deposit.
Flexi fixed deposits offer the best of both worlds as they provide the security and high-interest rates of a fixed deposit account and the flexibility to withdraw funds when needed without incurring penalties.
It is an ideal savings option for you if you wish to save money for a fixed term while retaining the flexibility to access your funds in case of emergencies.
Benefits of flexi fixed deposit:
- Higher interest rates – Flexi fixed deposits usually provide higher interest than savings accounts.
- Flexible tenures – Just like an ordinary fixed deposit, you can select the duration of your flexi fixed deposit from days to months. But all banks have different minimum and maximum limits for flexi fixed deposits. So check with your bank
- Premature withdrawal – A primary benefit of flexi fixed deposits is the liquidity with premature withdrawal. Also, it doesn’t charge any penalty.
- Loan facility – You can use your flexi fixed deposit as collateral for a loan. This benefit is unavailable with fixed deposits created through the auto sweep facility.
Drawbacks of flexi fixed deposit:
- Lower interest rate – Banks offer a little lower interest rate on flexi fixed deposits when compared to traditional fixed deposits. There is a tradeoff between liquidity and return.
- Tenure limits – Many banks have placed minimum and maximum tenure limits for opening a flexi fixed deposit. Like, ICICI only allows you to open a flexi fixed deposit for a minimum tenure of 15 days and a maximum of 91 days.
Should you save money in a flexi fixed deposit account?
If you have a lumpsum amount in hand and don’t have a clear idea of when you would need money, then saving your money in a flexi fixed deposit sounds brilliant.
With a flexi fixed deposit, your money would earn more interest than your savings account deposit. All this while providing you with good liquidity.
But in other cases, where you have a good idea of when you need money, you can invest in other investment instruments.
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