Key highlights
- A fixed deposit is an investment in which a set amount is invested at a set interest rate and term. All banks in Nigeria provide this investment opportunity; however, the rates offered by one bank may differ from those offered by another.
- The fixed deposit rates which most Nigerian banks offer are usually between 7% and 12% and depend on how much money is being deposited
- Some of the advantages of fixed deposits are that it provides a higher rate of return compared to a savings deposit, the returns are guaranteed and an individual can have several fixed deposit investments with different banks and at different terms.
This article explains how to invest in fixed deposits, how to open a fixed deposit account, what to expect from a fixed deposit investment and how you can earn from it.
A fixed deposit is an investment in which a set amount is invested at a set interest rate and term. All banks in Nigeria provide this investment opportunity; however, the rates offered by one bank may differ from those offered by another.
The amount of profit or interest earned on an investment is fixed when the depositor places money in a fixed deposit. Regardless of changes in interest rates, the rate does not rise or fall.
Fixed deposits cannot be withdrawn early and have maturities ranging from one week to five years. In other words, money cannot be withdrawn until the time period associated with the deposit has passed. The bank may impose an early withdrawal fee or penalty if money is taken out too soon.
Fixed deposit investments are usually calculated using simple interest, which means the key elements to take note of, is the principal, tenor and rate.
Some of the advantages of a fixed deposit are that it offers a better rate than a savings deposit and comes with a guarantee of returns. Also, a person may invest in multiple fixed deposits with various banks and under various terms.
Documents needed to open a fixed deposit
- A filled-out fixed-term deposit application, which the bank will provide.
- A valid form of identification, such as a passport or driver’s license.
- Utility Bill of Applicant (rent receipt, water rate).
- Two passport photographs
How much you can get from a fixed deposit
- The fixed deposit rates which most Nigerian banks offer are usually between 7% and 12% and depend on how much money is being deposited
- The more money you have available to invest, the higher the return.
- For example, to get up to 12% you may have to invest millions of naira.
Features of a typical fixed deposit investment
- Fixed deposit investment requires a minimum opening balance of N100,000.
- The tenor or investment period is a minimum of 30 days and a maximum of 360 days
- The total accrued interest that is not earned will be lost if the investment is cancelled before it reaches maturity. Consequently, the depositor will only receive the portion of the interest that was earned during the time that the money was in the bank.
- The customer has the option of terminating the investment amount.
- Withholding tax (WHT), which is typically subtracted from the interest earned, must be withheld from the interest paid to the depositor. The interest paid to the depositor is subject to a 10% withholding tax
- In comparison to other regular deposit rates, the interest rate is higher.
- The depositor has the option to withdraw his money before the fixed deposit matures, but doing so could cost him some money
- Fixed deposit interest rates vary from bank to bank, customer to customer, and amount to amount.
- Upon maturity, the bank pays the depositor both the principal and interest. A customer, on the other hand, can request a rollover.
- Fixed deposits are guaranteed as long as the bank is solvent.
- Fixed deposits can be used as collateral, but not all banks accept them.
- The bank makes money by charging borrowers a higher interest rate on the money they deposit in fixed deposits. The bank’s profit is the difference between the interest you receive on a fixed deposit and the interest your lenders receive.
Advantages of fixed deposit investment
- Provides a higher rate compared to a savings deposit.
- The returns from this investment are guaranteed.
- An individual can have several fixed deposit investments with different banks and at different terms.
Is it possible to withdraw the interest every month? For example if i invest like #1million.
Thanks.
Yes. You can request at the point of making the investment to credit your account with the interest, but Compounding will make your initial investment to grow faster i.e, reinvesting your capital and the interest earned.
For example I invest 1 million Naria for fixed deposit in fidelity bank that pays interest of 6 percentage how much will I get at the end of 360 days?
They told me in fidelity that it is 0.5,,%
How much is the interest of one million naira in a year?