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What Fixed Deposit Tenures Are Right For You? Pros And Cons Of Each

By Finserv MARKETS - Oct 15,2019
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Fixed deposits, or as they are popularly known – FDs – are traditionally preferred investment vehicles in India. As they say, old is gold. Not only have they maintained their popularity but they have in fact increased in popularity in recent years. Since fixed deposits are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, it is a risk-free investment that brings assured interest for the risk-averse, middle-class investor. Choosing a tenure consistent with your financial goals is the key to investment in all investment vehicles with a lock-in period, including fixed deposit accounts.

There are many kinds of fixed deposit accounts differing mainly in tenure, lock-in period and interest rates. It is easy to compare these by going through the bank websites or using various investment advice portals. Various banks and various non-banking financial institutions provide fixed deposit services. One must take care to use only accredited organizations to invest in fixed deposits to protect your investment from Ponzi schemes.

Basic Principles

In fixed deposits, you essentially exchange liquidity for interest. Liquidity is the availability of money and interest is the rent on your money. Therefore, the longer the fixed deposit tenure, the more the interest. Compare it with renting out your property. You can’t rent it out if you’re using it. The longer you rent it out for, the more rent you make. Some fixed deposit accounts also provide the option of withdrawal before maturity. However, in such cases, the appreciation or return on investment (RoI) will suffer in case of early withdrawal, whether partial or full. Premature withdrawal must only be made as a last resort. The longer you keep the money in the account the better compound interest can work its magic. As they say, discipline above all. It applies even more strongly in investment. Read carefully before you invest since some fixed deposits, especially the ones with a 5-year tenure are strictly about the no withdrawal policy.

Advantages Of Fixed Deposits

  1. Most banks and non-banking financial institutions that provide fixed deposit accounts offer higher interest rates for senior citizens. Senior citizens over the age of 60 are advised to invest accordingly to maximize their return on investment. For instance, on Finserv MARKETS, interest rates go as high as 8.7% and senior citizens can avail of rates which go 0.35% over and above the existing rates!
  2. Most fixed deposits allow you to save on your tax bills. Although the interest is taxable, the principal gives you tax rebate depending on your income bracket and the amount invested. Working professionals can make use of that to cut the tax on their salary considerably.
  3. Fixed deposit accounts provide security in the face of uncertainty of life. It is truly a relief to have money waiting for you at various stages of life. However, the habit of saving must be cultivated early for it to bear fruit later in life.
  4. Fixed deposits offered by major banking and accredited non-banking financial institutions are covered by insurance. This is like the government making sure you get your appreciated principal in addition to your interest despite market fluctuations so you are assured of guaranteed returns.

Understanding Tenures

Fixed deposit tenures are quite simple with a little bit of basic research before investing. It is the ideal investment vehicle for the financially conservative – risk-free and easily accessible for all. Fixed deposits are available for various tenures ranging from less than a month to decades. For instance, on Finserv MARKETS, you can opt for tenures ranging from 1 to 5 years. The longer ones are more lucrative. Tenure is also known as the lock-in period. It simply means the amount of time you are not allowed to withdraw the money. The longer the lock-in period the better the return on investment.

Fixed Deposit Investment Basics

You must invest in fixed deposit accounts based on your financial goals and life goals. This applies to all investment vehicles and all age groups, but especially to fixed deposits where investor discipline is paramount. If you are a young person working and want to save for a car down the line or you’re a working father who wants to save for his children’s education – you must first calculate the timelines of the major saving goals according to the major expenditures you foresee. If you are not sure, you can dip your toe with a short-tenured fixed deposit. Here’s a list of the best few fixed deposits in 2019 with a tenure of less than one year.

fixed deposit

Source: Policy Bazaar

It is the tradition in Indian society to even gift fixed deposits at major life events such as births, weddings, coming of age ceremonies etc. Sometimes the person the money is for may not be mature enough to make sophisticated investment decisions. In such cases, the parents and elders gifting fixed deposits is a beautiful tradition. Good foresight allows you to choose the right tenure for your fixed deposit. If possible, invest in multiple fixed deposit accounts of varying lock-in periods. It will make your life much easier. It is almost like leaving money for your future self as a gift. However, your present self must practice caution and discipline for your future self to enjoy the fruits of your investment.

The most popular fixed deposit tenure is 5 years. It allows you to save for a short to mid-term period and isn’t too difficult to maintain. It is most popular among young working professionals as it doesn’t burden their lifestyle too much and the promise of a return in 5 years is quite enticing. A young person will be well advised to have at least one 5 year fixed deposit plan. If your income allows, think about getting at least one longer-term FD, for example: a 10 year fixed deposit. If you’re a senior citizen, you can get a lot of value out of the 5-10 year tenure fixed deposit. Senior citizens usually don’t have to struggle with discipline, and can get great value from fixed deposits by investing wisely and spending conservatively.

The following are the banks with top ten interest rates right from 7 days to 10 days of tenure for senior citizens in 2019. 

fixed deposit

Source: Policy Bazaar

So, calculate your future expenditure, plan your financial goals and use fixed deposits to leave gifts for your future self!

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