It’s the twenty-first century and I think the majority of bank users are familiar with the term ‘fixed deposit account’. While still trying to answer the question; “Is cashless policy the future of payments?”, I doubt people still save money in their pillows, ceilings or pots. These were the ancient ways of saving money. Today, there are modern options including saving in banks, cooperative societies and mortgage banks.
Savings play a crucial role in achieving financial stability and success. Whether as an individual or a business, a solid savings plan can help you navigate financial challenges, reach your goals and achieve financial freedom.
However, if you’re looking to establish multiple income streams, and make passive income, it is not enough to just save your money. Because money saved remains the same no matter how long. In cases of inflation, it even depreciates.
In this post, we will explore why having a fixed deposit account is a better option for your savings, the benefits of fixed deposit accounts in Nigeria and why they are becoming an increasingly popular investment option for Nigerians.
What is a Fixed Deposit Account?
A fixed deposit account is a type of savings account where funds deposited for a specific period of time, usually ranging from a few months to several years, earn interest at a fixed rate. It offers a safe and reliable way to save money while earning higher returns compared to regular savings accounts.
In Nigeria, fixed deposit accounts are financial instruments for individuals and businesses looking to save money and earn higher interest rates. As the Nigerian economy grows, more people are turning to fixed deposit accounts to help them achieve their financial goals.
Why Fixed Deposit Account is a Better Option for your Savings
A fixed deposit account is an effective way to save money. It is a better option for your savings because it provides several benefits that can help you achieve your financial goals. It also insures your savings from inflation and establishes a passive income stream.
Unlike savings, fixed deposit accounts offer higher interest rates, making them an attractive investment option for those looking to earn more from their savings. These higher interest rates help your savings grow faster, helping you achieve your financial goals quicker.
Also, fixed deposit accounts offer guaranteed returns, ensuring that you get a fixed return on your investment regardless of market conditions. This predictability can help you plan your finances better and give you peace of mind knowing that your savings are safe and secure.
Furthermore, fixed deposit accounts have flexible tenures that can be tailored to your specific financial needs. Whether it’s saving for a short-term goal like a vacation or a long-term goal like purchasing a house, you can choose a tenure that suits your needs. This flexibility lets you plan your finances better and ensures that your money is available when needed.
Also, with a fixed deposit account, you can get your money back with interest at the end of the tenure. Fixed deposit is not a make-money-quick scheme like a game of luck or chance. You will get your money back with interest at the end of the tenure.
Additionally, banks consider fixed deposit accounts less risky than regular savings accounts. This is because the bank knows that they will have your money for a set period. They can plan their investments and manage their funds more effectively.
Lastly, fixed deposit accounts can serve as collateral for loans, providing you with easy access to credit when you need it. This is especially useful for businesses that need capital to fund their operations or individuals looking to finance a major purchase like a car or a home.
How Fixed Deposit Accounts Work
When you open a fixed deposit account, you agree to deposit a certain amount of money for a fixed period. The time ranges from a few months to several years. During this time, the bank invests your money in other ventures or loans it out to other customers. This generates higher returns on your deposit, and you get a portion of the returns as interest.
In contrast, regular savings accounts are typically more liquid, meaning that you can deposit and withdraw money from the account as needed. Because of this flexibility, banks cannot use your money for long-term investments, and therefore, they offer lower interest rates on regular savings accounts.
Fixed deposit interest rate for different banks in Nigeria
All banks in Nigeria offer this investment opportunity. However, the interest rates for fixed deposit accounts differ with each bank in Nigeria. It depends on factors like the amount deposited, the tenure of the fixed deposit, and the market conditions. Here are some interest rates of some popular banks in Nigeria:
Zenith Bank offers fixed deposit interest rates ranging from 2.25% to 6.5% per annum, depending on the tenure and amount of deposit.
First Bank of Nigeria
For a fixed deposit account with First Bank of Nigeria, they offer an interest rate ranging from 2.5% to 7.5% per annum. This depends on the tenure and amount deposited.
Guaranty Trust Bank
Guaranty Trust Bank offers between 2.5% to 7.5% interest rate per annum on fixed deposit accounts depending on the amount and how long it is deposited.
Access Bank offers fixed deposit interest rates ranging from 2.5% to 6.5% per annum. This is based on the tenure and amount of deposit.
United Bank for Africa (UBA)
UBA offers fixed deposit interest rates ranging from 2.75% to 7.25% per annum. This interest rate depends on the tenure and amount of money deposited.
Note that the interest rates for the fixed deposit accounts of these banks are subject to change and vary based on individual circumstances. Ensure to check with the specific bank for current interest rates, terms and conditions before opening a fixed deposit account.
Features of a typical fixed deposit investment
- Investment period (tenure) is a minimum of 30 days and a maximum of 360 days
- The minimum amount for opening a fixed deposit account is N100,000
- If the investment is terminated before maturity, the total accrued interest not earned will be forfeited. Meaning you’ll receive only the portion of the interest earned when your money was in the bank
- The interest paid to the depositor is subject to Withholding tax (WHT), which is usually deducted from the interest earned
Documents needed to open a Fixed Deposit Account
- Filled fixed term deposit form which the bank will provide
- Valid means of identification like National ID, international passport or Driver’s license
- Applicant’s utility bill like water rate or rent receipt
- Two passport photographs
- Customer investment advice
Consider opening a fixed deposit account as part of your strategy for attaining financial freedom. As discussed earlier, there are many benefits of a fixed deposit account in Nigeria. Money saved in a fixed deposit account yields interest over time. The interest compounds and can be used for other investments to help you attain financial freedom.