Fixed deposit is a deposit, where money may be kept in the bank, building society, merchant bank and credit union for a fixed period of time and fixed rate of interest. If depositors break the deposit then they have to accept an interest penalty.
Advantages:
a. Fixed deposits are very safe investments which are from reputed banks, because those banks are regulated by Banking Regulation Act.
b. There is an option of receiving regular income by interest rate payments and they may pay every month or quarter. This option is very useful to retired people.
Disadvantages:
a. Company fixed deposits are not safe these are not like bank fixed deposits. You have to lose your money if company goes bankrupt.
b. Fixed deposit doesn’t give you the same returns which may get in the stock market. A stock portfolio may increase 20-30 percent in a year but fixed deposit give only 7-10 percent.
c. A fixed deposit doesn’t give protection from inflation. If inflation increases at the time of maturity of the fixed deposit inflation adjusted earnings will come down.