Traditionally, fixed deposits have been a preferred mode of investment for Indians. They are secured and offer guaranteed returns compared to other investment options like mutual funds.
What is a Fixed Deposit?
Read the following paragraph to learn what is a fixed deposit and why you should make one
A fixed deposit is an investment option where a certain amount of money is locked away for a specific time. The tenure of the fixed deposit can be as per the investor’s choice or what is offered by the bank. It could range from a few days to several years. Fixed deposit accounts give the depositor a return through a fixed interest rate for the invested tenure.
Fixed deposits are offered by most banks at various rates. It is convenient to open a fixed deposit, and you may do it online or offline.
Top 7 Reasons to Invest in an FD
Following are some of the reasons why one should choose FDs as a choice of investment –
A fixed deposit guarantees a return and imposes little risk on the investor. It is an excellent and risk-free option to earn interest on the invested amount. You can begin saving money with an FD account, and you will also earn a rate of interest that is guaranteed. It is now even safer thanks to the DICGC (Deposit Insurance and Credit Guarantee Corporation) and RBI’s announcement in the Union Budget 2020 of higher insurance of Rs. 5 lakhs. This similar cap was previously set at Rs. 1 lakh.
2. Ease of liquidity
Your deposits are safe, and they are convenient to liquidate. Except for tax-saving FDs, most can be withdrawn early with a minimal penalty. The procedure is quick and simple. Using the net banking portal of your bank, you can close your FD online.
3. Higher interest rate than savings accounts
You receive interest on the balance of a savings account, but they are not very high. The interest rates on FDs are, however, substantially higher. Several banks offer a minimum interest rate of 7% or even more on FDs. Senior citizens get a higher interest rate on FDs.
4. Tax-saving option
Investors with fixed deposits can get deductions of up to Rs.1,50,000 from their taxable income each year under section 80C of the Income Tax Act. It makes FDs a fantastic tax-saving strategy enabling you to get assured returns. The tax-saving payments, however, have a statutory 5-year lock-in term and cannot, under any circumstances, be withdrawn before that.
5. Capital security
You don’t have to be concerned about capital degradation when using FDs. Your funds remain in the bank, which promptly pays you due interest. You receive your entire investment back when the FD matures. As a result, you don’t suffer any investment losses.
Without a cap, you can open an FD for as little as Rs.5,000-10000. The minimum amount of FD is low, enabling investors from different income strata to benefit from this investment vehicle. Since the amount you can invest in an FD is not capped, you can utilise it to build your finances. The tenure, on the other hand, is on you to choose. As an investor, you can select from short-term, mid-term, or long-term FDs, enabling more financial freedom.
7. Opening an FD Account
A new FD account can be started in a few minutes, and FDs provide many advantages for investors. Select a trustworthy bank that offers a competitive interest rate, then submit your KYC paperwork there. You may open a deposit account online with most banks with only a few clicks. Before you begin investing, make sure you choose the appropriate pay-out and renewal options.
Drawing from the information about FDs illustrated above, you can now create a strategy to invest and build your wealth. It is often essential to fulfil long-term financial goals like funding the education of your kids, buying property, planning retirement, etc. If you have any questions on these, contact a representative of a reputed bank for clarity.