Fixed deposits are popular investment options for conservative investors who wish to preserve the capital and earn guaranteed returns thereon. If this sounds like your investor profile, then investing in an FD may be a suitable course of action for you in case you have a lump sum amount at your disposal. Over the period of investment, you will earn assured returns in the form of interest at a predetermined rate on the deposit amount. These assured returns can either be paid out to you periodically, or reinvested in your account and paid out at maturity. You can use a fixed deposit calculator to check how your investment will grow over time.
There are various benefits of Fixed Deposits that you need to know about if you’re unsure of whether or not to invest in fixed deposits. Here is a preview of the top advantages of fixed deposits that you should be aware of, so you can make an informed investment decision.
One of the most compelling benefits of Fixed Deposits is that they offer assured returns with utmost safety. When you invest in a fixed deposit plan, you will be made aware of the rate of interest applicable on your deposit upfront. This rate of interest will remain the same throughout the tenor of the deposit. And you will earn guaranteed interest at this rate, thus eliminating any and all financial uncertainty.
Fixed deposits also encourage you to save your money in an organized manner rather than merely in the form of cash at home. When you save money in the form of cash, you do not earn any interest or returns on the sum saved. However, by offering returns at attractive rates of interest, fixed deposits encourage savings and help you grow your money, so it is easier for you to meet your future financial goals.
Another one of the many FD benefits is that fixed deposits in banks come with the backing of the Deposit Insurance and Credit Guarantee Corporation (DICGC). The DICGC, which is a subsidiary company of the Reserve Bank of India (RBI), offers a cover up to ₹5 Lakhs for each fixed deposit account. This means that in case a bank defaults in paying up your dues due to bankruptcy or any other reason, you will be covered up to this sum.
Depending on the kind of fixed deposit account you choose, the benefits of FDs may also include tax savings. There are special tax-saving FDs that come with a lock-in period of 5 years. The amount you invest in these fixed deposits is deductible from your total taxable income under section 80C of the Income Tax Act, 1961. The maximum amount of deduction you can claim is ₹1.5 Lakhs.
FD benefits for senior citizens include many advantages like higher FD interest rates and a higher limit for TDS deductions. Typically, most banks offer a higher rate of interest on deposits made by individuals who are 60 years of age or above. The rate can be higher by 0.25% or 0.50%. Furthermore, banks are also required to deduct TDS on FD for senior citizens only if the interest earned during the year exceeds ₹50,000 (instead of ₹40,000 for non-senior citizens).
Also among the many benefits of FDs is the fact that you can avail a loan against the amount in your fixed deposit account. The amount of loan that you can avail is fixed as a percentage of your FD account balance. It can generally range from around 60% to 90% of the amount in your deposit account. You can avail this FD benefit in case you need any emergency funds at short notice.
An often-overlooked benefit of FD is that it is a relatively simple investment tool. Even if you are just a beginner getting started on your personal finance journey, you can easily understand how fixed deposits work. This makes it possible for you to take informed and smart investment decisions rather than simply following the herd. By understanding how FDs work, you can make them work for you and your financial goals.
Flexibility in the investment tenor is also one of the top benefits of FDs today. You can choose from a wide range of deposit periods that can range from as short as 7 days to as long as 10 years or more. This makes fixed deposits suitable for your short-term, medium-term and long-term financial goals.
The key features of fixed deposit accounts include flexible tenors, easy renewal and so much more. In case you want to learn more about this investment plan before making a decision about whether or not to invest in an FD, check out the top features of fixed deposit accounts below.
Fixed deposits from banks and NBFCs offer highly competitive interest rates that help you earn guaranteed yet lucrative returns on your investments. You can compare the interest rates from different fixed deposit accounts and choose an FD plan that gives you higher interest rates than the market average. Depending on the bank or NBFC you choose and the tenor of your investment, the rate of interest can be 7% or higher too.
Another feature that counts among the benefits of FDs is the higher rate of interest that senior citizens receive on their deposits. The interest rate can be higher by 25 or 50 basis points. If you are above 60 years of age, you can take advantage of the higher senior citizen FD rates and set up a regular source of income for your post-retirement life.
Some fixed deposit plans also allow you to make periodic deposits into your FD account at regular intervals. You can choose from options like a monthly maturity plan, which offers you income from your deposit account each month, or a single maturity plan, where you receive your returns as a lump sum amount at maturity.
The minimum amount you can deposit in an FD can be as low as ₹5,000. Some fixed deposit accounts may even allow investments as low as ₹1,000. This means you can start your investment journey with fixed deposits even if you do not have a large sum saved up to start a lump sum deposit going up to several Lakhs of rupees.
Today, most leading banks and NBFCs offer the option to open a fixed deposit account online. Even the paperwork is minimal, making the entire process of applying for the FD facility easy and effortless. You do not have to worry about going to the bank or the branch office of NBFCs to open your FD account anymore.
Another common feature of fixed deposit accounts today is that many of them come with the option of auto renewal. This essentially means that at maturity, your fixed deposit investment will be automatically renewed for a period equal to the original investment tenor. So, you need not go through the trouble of withdrawing your funds and reinvesting them once more.
One of the key advantages of fixed deposits is that you get to earn guaranteed interest on the amount that you deposit. Other advantages of fixed deposits accounts include flexible investment tenors, flexible interest payout options and higher rates of interest for senior citizens.
There are many lucrative fixed deposit accounts in India for investors who wish to eliminate market-linked risks. Their interest rate can range from 2.75% to 7.25% for general citizens and 3.25% to 7.75% for senior citizens. Hence, you should compare offers by different banks before selecting one.
Fixed deposits are suitable investment options for you if you want to preserve your capital and simultaneously earn assured returns on your investment. They help you grow your money without taking on any additional market-linked risk.
The Deposit Insurance and Credit Guarantee Corporation (DICGC) compensation cover is an insurance coverage that protects depositors in case of any risks to their corpus. The cover offered for each fixed deposit account is capped at ₹5 Lakhs (or the amount in the account, if that sum is lower than ₹5 Lakhs).
One of the many benefits of fixed deposit accounts is that you can avail a loan against your FD. The exact amount of loan that you can avail depends on the amount you have deposited. Most banks and NBFCs allow you to borrow anywhere from 60% to 90% of the amount in your fixed deposit account.