Your Guide for Fixed Deposit as an Investment Option

One of the safest and most secure investments is Fixed Deposits. Those who avoid investing in mutual funds or equity due to the risk associated with them consider FDs a great choice.

With a fixed deposit, you can easily deal with your financial risks and fulfill your life goals.

People invest in FDs to secure their child’s future, education, or marriage or to deal with unexpected expenses.

You can also save a substantial amount for your future with FDs by putting aside a lump sum amount and letting it grow over a while.

Types of Fixed Deposits:

• Standard Fixed Deposit: It is the most common deposit. It can be opened in any bank with your savings account.

1. You can deposit money for a predetermined period

2. Interest rate is set by the bank

3. Duration- 7 days-10 years.

• Corporate Fixed Deposit: This deposit is made by private companies.

1. Offers high rates as compared to banks

2. Always check the company's credit rating to ensure your investment is safe.

• Cumulative Fixed Deposit: This can be your choice if you plan for a long-term investment.

1. Money invested for a predetermined period

2, Restricted from regular payouts

2. Money received at maturity

• Non-cumulative Fixed Deposit: This is the investment you have been looking for for short-term investors with monthly goals.

1. You can choose from monthly, quarterly, half-yearly, and yearly interest payout

2. Enjoy the interest on your invested money

• Tax-saving Fixed Deposit: You can avail of this deposit to save tax. It is available at all banks.

1. Tax redemption up to 1.5 lakh in a year.

2. Lock-in period of 5 years. (Funds cannot be withdrawn during this period)

• Senior Citizen Fixed Deposit: As the name suggests, this deposit is specifically for senior citizens.

1. Minimum age should be 60 years

2. FD Interest rates higher than standard rates

Interest Rate in Fixed Deposits

• The FD interest rates range from 3-9%.
• The minimum period for an FD is 7 days
• The minimum amount for a fixed deposit is INR 1000.

The interest rate on an FD depends heavily on which bank or private company you are borrowing from and for how long. The longer the period, the higher the rate of interest.

Pros and Cons of Investing in FD

PROS:

• Assured Returns: This is one of the main reasons people invest in FD.

You can invest your money for a fixed period and relax. You will receive a lump sum amount on maturity. This helps an investor in making a stable financial decision.

• Allows Premature Withdrawal: In an emergency, you can withdraw funds from an FD. This comes with a fee, but it is a great assistance. Also, there are no complex rules and regulations for premature withdrawal in fixed deposits.

• Tax Exemptions: The interest that you earn from an FD is taxable. Tax exemption is available to a certain level. Investors and senior citizens can legally evade taxes under Section 80C of the Income Tax Act.

• Loan against an FD: This is one of the greatest advantages of investing in an FD. If you are not planning to break an FD in case of an emergency, you can get a loan against your FD. You can avail of up to 90% of the FD amount as a loan from financial institutions.

• High security: Investing in FDQ is safe and secure. This is because the principal amount and interest you will get are pre-decided. Factors like an unstable market and economic fluctuation don’t affect your returns.

• Availability: This scheme is available in almost all banks/financial institutions. This makes it easier for investors to visit their nearest government or private banks, NBFCs, or post offices to take advantage of this scheme.

• Quick renewals: If you want to build wealth, you can renew your existing FD. This way, you can double your interest and build a profitable portfolio.

• Higher rate of interest for senior citizens: In almost all banks and financial institutions, senior citizens get a higher rate of interest on a fixed deposit than standard interest rates.

• Flexible Tenure: One of the most attractive features of a fixed deposit. You can choose the period for your deposit at your convenience.

• Open to all: There are no complicated criteria for investing in a fixed deposit. Anybody who is an Indian citizen and NRI can open a fixed deposit with banks or NBFCs by just verifying their KYC.

CONS:

• Lock-in period: You can withdraw your money from an FD easily. But still, there is a lock-in period until you cannot take out your funds. The lock-in period for your fixed deposit is mentioned on your FD receipt. You must check on it and plan your withdrawal accordingly.
• Penalties on withdrawal: One of the biggest advantages of opening a fixed deposit is a premature withdrawal facility, but a penalty fee is attached. A fixed percentage is charged for withdrawal by reducing your pre-determined interest rate.
• TDS: Interest earned from an FD is taxable. If your interest earned comes under the tax slab, 10% of TDS will be deducted from your interest.
• Lower Interest Rates: A fixed deposit is a secure investment, but some banks and financial institutions offer lower interest rates than inflation.
• Fixed interest: The interest rate for your fixed deposit remains unchanged till maturity. Even if the FD interest rates are revised, you will receive the pre-determined interest rate only.

Every investment has pros and cons. It depends on your expectations from an investment and its features. Based on these factors, you can choose the best investment that suits your purpose.

This blog must have solved your queries about FD as an investment option.