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.
Here are some of the key benefits of FD:
Safety: FDs are one of the safest investment options as they are typically offered by banks and are backed by government insurance up to a certain limit, ensuring the return of your principal amount.
Guaranteed Returns: FDs offer fixed and guaranteed interest rates, providing predictability in earnings.
Liquidity: While FDs have a fixed tenure, they are relatively liquid compared to long-term investments like bonds or real estate. Many FDs allow premature withdrawals, although they may come with a penalty.Flexibility of Tenures: FDs typically offer a range of tenure options, from a few days to several years. This flexibility allows you to choose a tenure that aligns with your financial goals, whether short-term or long-term.
Senior Citizen Benefit: Many banks offer additional interest rates of up to 0.50% to senior citizens on FDs. This can be a significant advantage for retirees looking for secure investment options with better returns.
Overdraft Facility: Some banks provide the option to take a loan against your FD, known as an overdraft facility. This can be a helpful feature for individuals who need short-term funds but don't want to break their FD prematurely.
Automatic Renewal Facility: FDs often come with an automatic renewal option, where the principal and interest of the matured FD are reinvested for the same tenure or a different one. This ensures your money continues to earn interest without manual intervention.
Premature Withdrawal Facility: While FDs have a fixed tenure, they usually allow for premature withdrawal in case of urgent financial needs. However, withdrawing before the maturity date may result in a reduced interest rate or a penalty, depending on the bank's policies.
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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.