Fixed deposits are a definite part of every individual’s financial plan. It is a financial instrument offered by both banks and Non-Banking Financial Companies (NBFC’s) where the investors deposit their money and earn interest for a specified amount of time.
Fixed deposits are recommended for people who have a low-risk appetite and want stable returns. It is even a great investment for those who just started their investment journey.
Even though there many other forms of high-return investments, Fixed Deposit’s (FD) have not lost their significance. They come with many benefits, such as:
Returns are guaranteed:
One of the key benefits of investing in a fixed deposit is that it gives guaranteed returns. Unlike, other investments that depend upon the market cycle, FD’s come with steady gains. Irrespective of the amount in the deposit, you will earn money according to the interest rate specified at the time of investment. The interest rates of FDs are over and above the savings account interest rates.
Tenure is flexible:
You can invest in FDs starting from 7 days to 10 years, depending on your requirements. If you are planning for a future expenditure after six years, you can now invest in FD and fix your maturity date in the completion of the 6th year’. In this way, you will not only keep your savings safe, but you will also earn interest for the same. Moreover, you can hold an FD in any bank, regardless of whether you carry an account with them or not.
In case of an emergency expense, you can withdraw your fixed deposit early. You would need to pay a small fee as a penalty before closing your FD account. But, generally, it is not advisable to initiate a premature withdrawal of fixed deposit. Instead, you can take a loan against your FD, and most banks offer 60-90% of the deposit amount as a loan. You can manage your expenses by substituting the interest paid for the loan with interest earned for your FD.
FD’s are safe investments as they do not depend on the market cycle. You will get an assured amount at the end of the maturity period. This feature of FD makes it a favored option among investors who are opposed to the risk and want to invest in safe investments that give out stable returns.
Higher interest rates:
The rate of return on FDs is much higher than a standard bank savings account. The interest rates also vary according to the tenure chosen by you and are higher for FDs that have a longer tenure. If the FD belongs to a senior citizen, then rates of interest are much higher.
Fixed deposits mandate that you need to keep the invested amount for the specified tenure to earn the said interest. This feature fosters savings, helps us curb unnecessary spending, and paves the way for us to manage our financial well-being diligently.
Flexible interest pay-outs:
FDs offer different pay-out terms like monthly, quarterly, or yearly. This will result in an alternative source of income for you. Alternatively, you can re-invest the earned interest into the FD and earn higher returns. This type of fixed deposit is called Cumulative FD.
Joint Fixed Deposits:
Many are unaware that an FD can be opened jointly. You can open it along with your spouse, children, and even parents. However, if you are initiating a premature withdrawal of your FD, you need to obtain the consent of all the joint FD holders.
However, when you are opting for fixed deposit investments, consider these following points for getting an optimal return:
- If you are investing a considerable amount in FD, try splitting them into different amounts and invest them in different tenures, so that you will have liquidity.
- You can also invest different amounts of FDs with different lenders, and, in case of premature withdrawal, you will pay only a small potion of penalty as opposed to paying a huge penalty fee to only one lender.
- Ensure that you choose a comfortable lock-in period that aligns with your financial goals as withdrawing before the completion of tenure will result in lower returns.