Pros and Cons of Investing in FD: All You Need to Know

Looking for an ideal way to kickstart your investment portfolio? Want a risk-free and easy-to-find higher rate of return on your investment? Fixed deposit interest calculators will help you calculate the returns from your FD investments. Do read this article carefully to understand the pros and cons of a fixed deposit and the FD Interest Calculator in detail.

What is Fixed Deposit?

A Fixed Deposit account allows you to invest a sizable sum of money at a set interest rate for a specified time frame. This is a great way to save since, at the end of the term, you get the lump sum plus interest. The interest you get on a Fixed Deposit account varies from bank to bank.

The shortest term for a Fixed Deposit is 7–14 days, and the longest term is 10 years. Due to this, a Fixed Deposit is also known as a term deposit. When you open a Fixed Deposit account at a certain interest rate, that rate is guaranteed; it will never change, even if the market rate of interest does.

If you like, you can show your interest either at the end of the term or at regular intervals. The funds are not available for withdrawal before the maturity date. If you miss the deadline, you’ll have to pay a penalty. You should learn the ins and outs of Fixed Deposit before putting your money into it. Both the upsides and the downsides of investing are explained here.

What is the FD Calculator?

When you make a fixed deposit, you get a certain rate of interest. Interest adds to your principal amount, growing your savings. Manually calculating the interest can be difficult. The FD Interest calculator makes calculating interest and maturity easy.

The FD interest calculator estimates how much interest you’ll earn on a fixed deposit over time. After annual compounding, an online FD calculator determines the final payout.

Pros

Financially secure deposits are a good place to put your money. Investing money in a Fixed Deposit is a wonderful strategy that does not involve any risk.

• Stable investment

Investments such as stock dividends, bond interest, and mutual fund return investments in FDs are significantly safer because their returns are not tied to the market. Guaranteed returns are only one reason why FDs are a good option for people who don’t have a lot of money to invest.

• Borrowing Against a Fixed Deposit

Instead of paying a penalty for prematurely withdrawing from your Fixed Deposit (FD), you can get a loan against it to help you out of a tight spot financially. Up to 75% of the total value of the FDs can be borrowed.

• Variable Interest Rate Distributions

In FDs, you can decide the amount you want to fix to save and accordingly select the interest rates. Payout options include yearly, monthly, and upon maturity. For the elderly, FDs offer special rates of interest.

Fixed deposit interest calculators can be used to determine how often you’ll get paid.

• Guaranteed and Risk-free Investment Returns

The FDs are not tied to market fluctuations. Therefore, they are a rather safe option. In this way, your investments will generate a profit. Moreover, the interest rate on an FD is guaranteed to be the same for the duration of the investment, increasing the benefit. The FD Calculator is the best option to understand your return.

• Tax Saving Fixed Deposit

Fixed Deposits are one of the various investment options allowed by Section 80C of the Income Tax Act. It allows them to deduct Rs 1.5 lakh from their taxable income. There is a 5-year commitment requirement for tax-saving FDs.

• Deposit Guarantees

If a bank (excluding NBFCs) is placed under moratorium owing to an unusual stoppage of activity, account holders can now obtain up to Rs 5 lakh in maximum insurance within 90 days.

• Benefits from Taxes for the Elderly

There is a Rs. 50,000 annual cap on the amount of interest a senior citizen can receive from a Fixed Deposit before that interest is taxed. Deposits made by the elderly also earn a greater interest rate.

Cons

It is important to keep in mind that FDs come with several potential drawbacks. Below is an explanation of the drawbacks associated with FDs.

• Poor Return

However, as compared to other short-term market-linked investments, FD returns are poor despite being guaranteed. The FD Calculator is the best option to understand your return and then make a decision.

• Low Liquidity

A penalty will be incurred if you cash out your FD before it matures. When you cash out an FD, you can also receive a reduction in interest on the entire investment.

• Tax Return Expenses

You will have to pay taxes on any gains made from your FD. There will be a 10% tax taken from your interest income if it is more than Rs. 10,000. For retirees, this bare-bones payment is now Rs. 50,000. If you want to maximize the tax benefits of your FD investments, you should prioritize tax-saving FDs. When opening a joint account, remember that only the primary account holder will be entitled to the tax benefits given by Section 80C of the Income Tax Act of 1961.

• Failing to Prevent Inflation

Fixed-rate deposits (FDs) earn the same amount of interest for the whole duration of the deposit. They are static and cannot be changed. If the inflation rate is 6% and the interest rate on your FD is 5%, then you are likely losing money on your FD investment.

• Penalty on Premature Termination Fees

A pre-closure penalty may be imposed if you withdraw funds before the end of the term. Any accrued interest may be taken from your withdrawal total before crediting the principal amount.

• Constant Rate of Interest

When you open a Fixed Deposit account, you lock in an interest rate for the duration of your deposit. Thus, even if interest rates go up, you will not be able to reap the rewards as your interest rates are already fixed.

Conclusion

The purpose of this article is to give a comprehensive examination of the pros and cons of FD investment. We have also tried to explain the FD interest calculators. Whether an investment is the best choice for you or not should be determined carefully by yourself. Before investing, it is also important to be aware of the pros and cons of FD.

Visit the official website of Piramal Finance to understand the FDs in detail. Do explore their products and services and read the blogs posted by them.