A fixed deposit is a tool where you invest some lump sum money for a fixed period at a fixed interest rate. We have always herald our parents and grandparents talk about saving money. Fixed deposits are a great way to induce saving behaviour. People who have just begun their professional journey and looking for investments often invest in FDs.
FDs are considered to be the safest investments. They are high yielding and comparatively better than saving accounts. When you use a savings account for saving purposes it becomes a bit difficult. Savings accounts are readily available at your disposal but FDs are not. Even though FDs can be easily liquidated but still your money is untouched. Today banks have brought us various options for FD savings. There are a plethora of options available for fixed deposits. Many new features have been added to various FD schemes.
Benefits of Fixed Deposits
Fixed Benefits are mostly available at high-interest rates. These interest rates vary from bank to bank. Fixed deposit Today we are here to discuss the many benefits of investing in FDs.
Safe returns
Fixed deposits assure you of safe returns. The Fixed deposits remain unaffected by any kind of market lows or fluctuations in the market. The fixed deposit interest rates that are offered during opening an FD will remain the same throughout the FD period. For instance, if someone opened an FD at an interest rate of 5.06% p.a for a tenure of 2 years, the interest rate would remain the same for the time regardless of market fluctuations. FDs provide you with guaranteed returns and you can always predict the returns and plan your finances.
Tax benefits
Banks often offer tax savings fixed benefits with helps the investor with their tax liabilities. You can claim a tax benefit of around 1.5 lakhs under Section 80C of the Income Tax Act of India which was laid in 1961. However, these Tax Saver Fixed Deposits come with a five-year lock-in period which can be a bit of an issue but people usually opt for such FDs. Such tax benefits help an average individual with managing their taxes and helping them with planning their future finances.
Backed by deposit insurance
Some banks offer fixed deposits that are undertaken by the deposit insurance programme of Deposit Insurance Credit Guarantee Corporation. This is a branch of RBI. in case any bank fails, the investor will be receiving their bank deposits. This includes fixed deposits, recurring deposits, savings accounts and current accounts. These returns sum up to Rs 5 lakhs per investor or depositor of that particular bank. This means that if any bank goes bankrupt and is unable to pay back its customers, the members or customers will get compensation and full coverage of their funds. Also when your FD earns with the interest, the amount will not attract TDS.
Benefits for senior citizens
Senior citizens always get extra on interest rates than younger people. Most of the banks and NBFs very much follow this. Usually, senior citizens get a 0.25% hike in interest rates or more.
Secured credit cards
When people do not get a regular credit card they can apply for a credit card against their FD. this is very beneficial for people with low income or bad credit scores or even because of unserviceable locations. These FDs are used as collateral too and in this way, people will be encouraged in investing in their fixed deposits.
Flexible investment period
When you open fixed deposits you can choose how long you want to lock the money. These tenures are different for every bank. Banks can offer you tenures from around 7 days to 10 years or more. The interest rates also depend on the tenures you choose for your fixed deposits. It is always better to calculate your interest rates and time periods on your preferred bank’s website. When you reach their website you should search for an FD calculator. In this way, you will be able to make better decisions about which Fd you want to invest in.
Loan facility
Most banks readily offer you a loan against your fixed deposits. This is usually through an overdraft facility where a credit limit is sanctioned to the one borrowing the money. This loan used the FD as collateral or security for the loan. In this case, the borrows will still be receiving interest on their FD. in these loans the borrowers can withdraw the amount mentioned in the overdraft. This amount also like other loans is repaid along with interest. During emergencies and financial crunches, you will not have to break your FD before it matures. These loans against your FD are very secure as you do not fear using your investments or your interests. You can choose what amount of FD you want to take a loan against. In this way, you can also save some of your FD funds too.
As we mentioned above these FDs are very secure and safe investments. Although before you invest in an FD you should consider a few things.
- Compare every bank and NBFC and select the best offer for your FD.
- It is always beneficial to conduct a few checks on your banks or NBFCs to be very sure.
- Some banks charge a little amount on pre-withdrawal of FD
- Always check the FD calculator for better =understanding.
How to open an FD
When people think of secured investment forms they usually think of fixed deposit accounts, life insurance, PPfs, etc. You see even though there are a few other options available, FDs are the quickest, easiest and a very secure way to invest your money. People who don’t know much about finances can safely put their funds in fixed deposits. Banks offer quick FD processes which save you a lot of time. You can open a fixed deposit account for as low as Rs 500. And this amount can go up to how much ever you want to invest.
Documents required
Banks or NBFCs can provide you with a variety of fixed deposit schemes. Tax benefit fixed deposits, regular fixed deposits, fixed deposits for senior citizens, and more are available at your disposal. You can select a preferable FD tenure, although few of these FDs can have a fixed time. The best part about opening an FD is that you can easily liquidate the funds. Some banks do not even charge you with pre-withdrawal penalties.
The process
To open an FD you can simply talk to your banker or the manager of the branch and ask them to create an FD for you. They might ask you for some documents such as ID proof and PAN card. Also, they can ask you to provide a document which shows your relationship with the bank. These days you can also use your bank’s or financial institution’s mobile app to create an FD yourself and track them on the go.
To summarise the entire thing, in our opinion FD is a good investment. They are easily accessible and require very less documentation. Youngster who is in their twenties and is just starting up their financial journey can avail this option to start early savings. Moreover, compound benefits and guaranteed returns make it an attractive investment too.