What are the Pros and Cons of Investing in a Fixed Deposit?

fixed deposit is an excellent method to start your investment portfolio (FD). It is not only risk-free and simple to understand, but it also aids in the growth of your money. Your money is held in an FD for a set period of time and you receive interest on it until the maturity date. Interest rates on FDs are greater than those on savings accounts, which is one of the reasons they are so popular. The benefits and drawbacks of investing in a savings account are outlined below.

Pros of investing in FDs

FDs are seen as an excellent way to begin saving for the future. Its advantages are mentioned further down.

  • Low risk

Because FDs are not linked to market movements, they carry a low risk. Individuals with a low risk appetite should consider FDs since they offer assured returns.

  • Fixed-term

An FD plan has at least six months and a maximum of five years of tenure. This means that your money will be safe and you will be able to earn interest on it.

  • A loan secured by a certificate of deposit

If you have an emergency and need money, you can easily take a loan against your FD to avoid prematurely breaking it.

  • Payout possibilities with a range of interest rates

You can choose the desired phrase in an FD. You can also choose where the interest is deposited to your FD account. You have the choice of receiving interest payments on a monthly, annual, or at-maturity basis. Senior citizens can take advantage of higher fixed deposit interest rates. You can always calculate interest with simple FD calculator tool.

Cons of investing in FDs

There are certain downsides to FDs that must be considered. The disadvantages of investing in a fixed-income security are outlined below.

  • Return on investment is low.

An FD offers guaranteed returns, but the rates are low when compared to other market-linked investments.

  • Premature withdrawal carries a penalty.

You will be charged a penalty if you remove the FD before the maturity date. If you break your FD before the maturity date, you can obtain a low interest rate.

  • There is no complete tax exemption available.

The interest you receive on a savings account is taxable income. According to the 2019 Budget, your interest gains on FDs up to INR 40,000 will be tax-free. If your interest income is larger than INR 40,000, however, you will be subject to a 10% Tax Deducted at Source deduction (TDS). As a result, if you're seeking a tax-free investing solution, FDs aren't the best choice.

Conclusion - Pros and Cons of Investing in FD

Because of the low risk and constant return, many people prefer to invest in FDs over other types of investments. This is why it is still a popular investment option for retirees. When it comes to fixed deposits, the benefits outweigh the disadvantages, and if you're searching for a low-risk investing choice, you should invest as soon as possible.

FAQs

  • ✔️What are the disadvantages of a fixed deposit?

    There is no way to get your money if you need it. While considering Pros and Cons of FD many consider this as a major drawback. You lose the flexibility of a regular, day-to-day savings account because your money is locked away with the bank for months (often years).

  • ✔️Is FD good or bad?

    Fixed Deposits (FDs) are one of the safest and most popular investment options for people who don't want to risk their money on risky products like stocks and mutual funds.

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