A banking or a non-banking financial company offers the facility of a fixed deposit (FD), in which you can safely keep your funds and earn fixed-rate interests. Investing in an FD will provide you the stability you have been looking for. Open FD when you want to gain higher returns than what a savings account, such as an instant savings account, has to offer.
Fixed deposits are also known as term deposits in the financial lexicon. Money is deposited in such accounts for a specific time period, which usually ranges from seven days to ten years. There are several benefits of a fixed deposit, which is why we have listed below a few reasons to help you determine that investing in an FD is not a wrong choice.
Reasons You Should Invest In A FD
Investing in a fixed deposit can be pretty beneficial in realizing your life goals. It is particularly suitable for the masses who are unwilling to take many risks while saving their money and gaining returns. The various reasons which make it an ideal option for you have been mentioned below.
Returns On Investment
Opening an FD ensures you assured returns on your investments. As the interest rates are fixed when you deposit your funds, it is entirely a risk-free option. These rates of interest are fixed and not influenced by market changes.
You can rest assured that when you Open FD, the money you deposit is completely safe up to a limit of five lakhs. RBI’s subsidiary, DICGC, assures paying compensation worth the amount mentioned earlier if the financial institution has to go into liquidation under any circumstances. This insurance engulfs the principal amount and the interest you have earned.
Easy Predictable Returns
As the tenor and the interest rates are fixed, the returns are easily predictable. This feature of an FD will help you financially plan better, and you can deposit according to the parameters to reach your goal within a stipulated time.
Most financial institutions offer a five-year tax saving plan. It helps you get a tax rebate under section 80C of the Income Tax Act, 1961, when you file the income tax returns. This scheme allows you to invest from an amount of a hundred to five lakhs. However, you have to keep in mind that it brings along a lock-in period of five years.
Loan Against FD
You can secure your loan with the FD as collateral in times of your need. It will save you from opting for high-interest personal loans. It would be best to know that you can apply for a loan of up to 90% of the FD amount.
Aspects To Consider While Investing in Fixed Deposits
Bank Fixed Deposits are popular investments for all as they guarantee principal repayments with interests. If you are thinking of investing your hard-earned money in FDs, you must consider a few aspects beforehand. The aspects are:
Depending on the investment term and other specified factors, the interest rate varies. Every bank has a different interest rate, and the age of the investor also plays an integral role in it. For senior citizens, the interest rate may be a little higher, so ensure that you check the interest rate offered by the banking institution before investing.
The Credibility of the Provider
While investing in a fixed deposit, checking the credibility of the provider is of utmost importance. Even though banks fixed deposits are considered a secure investment option, it’s better to check the credit rating. It will help you decide if you should invest a lump sum or a small amount.
Non-Cumulative and Cumulative Fixed Deposit
In cumulative FDs, you will get the principal amount and interest after the investment term is over. After that, if you want, you can again invest the principal and interest amount for the next tenure. But in the case of non-cumulative FDs, you will get the interest in your account at certain intervals. However, cumulative FDs will fetch you more income and are more suitable if the amount is large.
Premature Withdrawal Loans
In case you wish to liquidate your fixed deposit before the maturity date, you need to pay a penalty for that. The penalty will vary from one banking institution to the other. It’s better to look at the penalty amount that you might need to pay if you withdraw the amount before the specified date.
Loans Against FD
In case of financial assistance, you can get a loan against your FD. But the interest rate may vary, so check with the institution about the details. As a result, you can avail of a loan against your FD.
Minimum Time for Investment
Before investing, check the minimum time for which you need to invest. Some institutions offer from one day to ten years, while some are specific, like one year or two years. Well, verify the tenure and decide on how much time you would like to invest your money.
Before investing, check if there are any details about the minimum amount that you need to invest. The minimum deposit can be anything from 5,000 to any number. Therefore, going through every aspect before investing will give you an idea of how you would like to plan it.
Keep in mind the name that you would like to provide in the nomination details section. It’s because, upon the death of the investor, the nominee has the right to claim the amount.
Well, if you keep the above aspects into consideration, you can decide where it is better to invest. Fixed Deposits are strategic and safe investments, serving both regular income and no risks.
So, you see, investing in a fixed deposit is not a bad idea, after all. You can earn higher interest rates than an instant savings account while the purpose behind it, which is saving your money, remains the same. All the benefits mentioned above will help you fulfill your life goals better and, in some cases, faster. We hope we have been able to help you realize why you should invest in an FD.
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