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Grow your money with fixed deposit accounts: Business : - Nigeria's Premier Online Forum


Grow your money with fixed deposit accounts

By: dayan (M) |Time : August 23, 2016, 09:03:32 AM
— 23rd August 2016

Stories by Omodele Adigun

In Nigeria, one of the ways to make your money work for you is to invest it in fixed income instruments. And one of such fixed income instruments which commercial banks provide is called a fixed deposit account.

According to Felix Okoli, a financial analyst, a fixed deposit account “is an account you hold with a bank for a fixed period of time, fixed amount and at a fixed interest.” He explains to Nabanker, an online medium, “that if that money was in just your savings account, it may only earn you small income based on interest. But if you fixed it into a fixed deposit account, your chances of getting more benefits would be higher. The benefits of fixed deposit accounts far outweigh that of savings account.”

Corroborating Okoli, says a fixed deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.
It adds: “The defining criteria for a fixed deposit is that the money cannot be withdrawn from the FD before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates. It’s important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between four and 11 per cent. The tenure of an FD can vary from  seven, 15 or 45 days to 1.5 years and can be as high as 10 years.”

On how fixed deposit account works, Okoli explains: “Let’s assume you invested the sum of N200,000 in a bank account as fixed deposit for a period of 90 days and at an agreed interest rate of 10 per cent per annum, what that simply means is that you stand to earn N1,666 per month or N5000 after 90 days or three months.
“Let’s also assume a second scenario in which you invest N1 million into a fixed deposit account with a bank for 90 days at 10 per cent per annum. That will earn you N25,000 after the end of those 90 days. “
Giving additional explanation for this, Wikipedia states that “to compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. The longest permissible term for FDs is 10 years. Generally, the longer the term of deposit, the higher is the rate of interest but a bank may offer lower rate of interest for a longer period if it expects interest rates, at which the central bank lends to banks (repo rates) to dip in the future.”

However, most Nigerian banks offer their customers the flexibility and convenience to choose a convenient maturity date for their depoists. Apart from this, they promise risk-free return on investment; attractive interest rates and they guarantee interest rate for fixed tenor of your deposit. To enjoy these, you must be ready to invest a minimum of N250,000. This amount may vary from bank to bank.

To qualify for fixed deposit accounts, every bank spells out its own criteria. Generally, most banks will not accept a depositor whose age is less than 18 years. And as part of Know Your Customer (KYC) requirements, they require the passport photograph of each authorised signatory and proof of identification, such as an original passport, driver’s licence, National ID card or voter’s card (for sighting) and photocopies are required for new customers. A copy of a recent receipt from any public utilities or private telephone operator not later than three months may also be required for new customers. A copy of a residence or work permit for foreign account holders is required.

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