Every Indian invests in a fixed deposit as it is always one of the most preferred choices. It has a low risk which involves the returns being guaranteed. The fixed deposit is not market-linked. Thus, market volatility plays no part. It is an ideal choice for those who are less aware of the capital market.
The fixed deposit is a financial instrument in which there is a fixed interest rate during the period. The tenure of fixed deposit can range from 7 days and stretch out until 10 years. In some banks, the tenure can even stretch to 20 years.
However, some investors are offered with a higher rate of interest. The returns are ascended when compared to keeping your money in a savings account.
Safe investment option: When it comes to FD, it is one of the safest investment methods. Unlike the other investment methods such as mutual funds, fixed deposits are not market-driven. The investors are provided with a rate of interest that remains the same throughout the tenure. However, at the time of booking a fixed deposit, you should expect from their investment. It will help you in financial planning.
Encourages the habit of saving: Saving is a healthy habit, and not many can excel. But at the same time, everyone wishes to have an excellent balance between relying upon in times of need. When you start investing in a fixed deposit account, it does not attract any significant risk. People are less hesitant to invest in the same.
As it is a liquid option, the depositors have a sense of satisfaction. If there is an emergency, then all you need is to break the fixed deposit prematurely. The penalty is negligible and it counts to nothing.
Backed with deposit insurance of Rs.5 lakh: A bank fixed deposit is backed with an insurance of Rs.5lakh The cover provided by the DICGC( Deposit Insurance and Credit Guarantee Company) is a wholly-owned subsidiary of the Reserve Bank of India.
But in case of bank defaults, it goes bankrupt and becomes unable to return the account holder’s savings amount. DICGC steps in and pays Rs.5 lakh as compensation. However, irrespective of the deposit made in a fixed deposit, it can even be less than the insurance cover. The investors will be paid with the full coverage amount.
Tax Saving option: All of the banks provide their customers with tax-saving fixed deposit options that help bring down your taxable income, which in turn tends to pull down tax to be paid. The investors can put in up to Rs.15 lakh of the amount in a tax-saving fixed deposit that can be quoted in deductions u/s 80C of Income Tax Act, 1961.
However, these schemes come with a lock-in period of 5 years. Still, before 5 years, there are no premature withdrawals that can be made but only in case of the untimely death of the deposit holder.
Higher FD rates for senior citizens: When it comes to senior citizens, they are offered higher fixed deposit interest rates. The practise is adopted by most the banks and non-banking financial companies as well. However, the preferential rate for senior citizens usually ranges from 0.25% to 0.65% above the standard fixed deposit interest rates.
Flexibility in Interest Payout: The interest rate earned in a fixed deposit is paid by two methods. They are cumulative and non-cumulative. Cumulative tends to accumulate on the interest on which further interest can be earned and paid on maturity. However, non-cumulative is the exact opposite of the cumulative one. The interest is paid on regular intervals, which the depositor chooses that can be monthly, quarterly or yearly.
If you are looking for regular income, then the non-cumulative method will suit you well. It is beneficial to go with a cumulative one as it earns maximum returns by letting the power of compounding work.
Facility to avail loan against FD: Besides taking an unsecured loan at a higher rate of interest, the fixed deposit holders have the option to finance their emergencies themselves. For example, by taking up a loan against their own fixed deposit. There is always a tiny percentage of 0.5% - 2% that is charged over the applicable fixed deposit rate.
In this manner, you do not need to pay heavy interest rates and do not compromise on the FD interest. There is also no reason to break your fixed deposit in this process.
Simple to understand: The fixed deposit is a safe option and is equally easy to comprehend. In an amount of Rs.1 lakh for one year @ 8% interest, there will be a profit of Rs. 8,243. There is absolutely no market fluctuation that can bring this amount down. It is not necessary to monitor the fixed deposit on a daily basis. But the same cannot be said about the other investments, such as equity funds. There are no market-related dips when involved with fixed deposits.
However, in case a depositor chooses to withdraw the FD amount before its maturity. There will be a downward shift for sure.
With the help of an FD calculator, you can calculate how much interest you can earn in a fixed deposit. Before investing in any investments, make sure you are well aware of it and then alone invest in a fixed deposit.
