Fixed deposits (FDs) are a popular savings tool in India. They offer a stable and predictable way to grow your money. Here are some common advantages of having an FD account that you should know about.
Assured Returns
One of the primary benefits of FDs is the assurance of returns. Unlike market-linked investments, fixed deposits have a fixed interest rate throughout the tenor. This means you know exactly how much you will earn at the end of the investment period. For instance, if you invest ₹1,00,000 at an interest rate of 6% p.a. for one year, you will earn ₹6,000 in interest. This predictability makes FDs an attractive option for those seeking low-risk investments.
Capital Protection
FDs protect your deposit amount, making them a low-risk investment. When you opt for an FD, the initial amount invested is secure from market fluctuations. This is in contrast to equity investments, where the value can fluctuate as per changes in the market. Thus, FDs are ideal for risk-averse investors. It is also a great option for those looking to preserve their capital while earning a stable return.
Flexible Tenors
Fixed deposits offer a wide range of tenors, typically from 7 days to 10 years. This flexibility enables you to choose a period that aligns with your goals. Whether you need to park funds for a short period or save for a long-term goal, there’s an FD tenor that suits your needs. For instance, you can choose a short-term FD of 6 months if you need funds soon. Meanwhile, a long-term FD of 5 years can help you save for a future expense. Check the options available on a digital financial marketplace like Bajaj Markets. You can easily compare the options and see how the interest rate differs with a change in the tenor. You can also use tools like the FD calculator to check each option and choose the one that fits your needs the best.
Higher Interest Rates for Senior Citizens
Banks and NBFCs usually offer higher interest rates on FDs for senior citizens. This additional interest often ranges from 0.25% to 0.75% higher than the regular rate. It provides senior citizens with a better return on their investments. For example, if the standard interest rate is 6% p.a., senior citizens might get 6.5% p.a. This helps them maximise their savings and generate a stable income. It can be particularly useful during retirement.
Easy to Manage and Liquidate
FDs are straightforward to manage. You deposit a lump sum for a chosen period, and the interest accrues over that period. Managing an FD doesn’t require active monitoring, unlike equity investments. Also, if you need to liquidate your FD early, issuers offer the option of premature withdrawal. However, you may be required to pay a penalty for it. This feature adds a layer of liquidity to the investment. It ensures easy access to funds in case of an emergency.
Tax Benefits
Certain FDs offer tax benefits u/s 80C of the Income Tax Act, 1961. Tax-saving FDs have a fixed tenor of 5 years. You can claim up to ₹1.50 Lakhs of the principal amount as tax deductions to lower your taxable income. However, the interest earned on these FDs is taxable. This advantage of saving tax and earning returns makes FDs an appealing choice.
Additional Benefits of Fixed Deposits
Here are some other advantages of opting for a fixed deposit that you should know about:
Guaranteed Interest Rates
FDs come with guaranteed interest rates. This makes them a reliable option for those who want to avoid the volatility of the stock market. The rate agreed on at the time of making the deposit remains unchanged over the tenor. This stability can be particularly reassuring during economic downturns. It can act as a safety net when the returns of other investments become unpredictable.
Loan Against FD
Another notable benefit of FDs is the ability to get loans against them. If you need funds urgently, many banks and NBFCs allow you to take a loan against your FD. The interest rates on such loans are lower than personal loans or credit card interest rates. It is a cost-effective borrowing option. For instance, if you have an FD of ₹5,00,000, you can avail a loan of up to 90% of the FD amount, depending on the bank’s policy.
Automatic Renewal
Most banks and NBFCs offer the option of automatic renewal for FDs. This ensures that your investment continues to earn interest even if you forget to renew it. So, if your FD matures, it can automatically be renewed for the same period at the same interest rate. This ensures continuous growth of your savings without any administrative hassle.
FDs are a reliable savings tool that offers assured returns, capital protection, flexible tenors, tax benefits, and more. These features make FDs a favoured choice among Indian investors. FDs could be a valuable addition to your investment portfolio as a secure option. FDs are an excellent choice for those seeking a low-risk, hassle-free investment option to grow their savings steadily. Open a fixed deposit account and make the most of these advantages today!
