Whether you’re a novice or an experienced investor, a fixed deposit is an excellent addition to your investment portfolio.
FDs are considered the safest forms of investment since they carry the least risk while offering decent returns on your investment. And, you have the option to choose from a variety of fixed deposit schemes to suit your finance needs.
How Does A Fixed Deposit Work?
With a fixed deposit, you can invest a fixed sum for a certain number of years and get Interest on your investment at a fixed or compounding rate.
If you opt for a fixed rate of interest, you will get any interest accrued on your fixed deposit along with the principal upon maturity. In a compound interest scheme, your interest will be credited to your account at regular intervals, like monthly or quarterly, and you will get your principal at maturity.
Benefits Of An FD
A fixed deposit scheme is an easy and seamless way to invest your money for as long as you need. If you’re considering a fixed deposit, here are the benefits of investing in one to save and grow your money in the long run
- Low-Risk Investment
Fixed deposits are popular among the masses since they are relatively risk-free. Once you invest any sum in an FD scheme, you can be assured of getting your principal and interest since fixed deposits are not subject to market volatility.
However, there is still a very minor risk FDs still carry of a bank becoming bankrupt, in which case you might not get your investment.
An FD is flexible because you can choose your investment amount and tenure of investment based on the optimum interest rate.
Most finance institutions allow an FD of anywhere between Rs. 5000 to Rs. 10,00,000. And, if you invest in the PNB Housing FD scheme, you can get an interest of up to 7%.
3. Easy Liquidation
FDs are easy to invest in and even easier to close if you need your investment at any time. Some schemes have a lock-in period of 1 year, and tax-saving FDs have a lock-in of 5 years.
Once the lock-in term is over, you can withdraw your FD fully or partially, and you will get the interest on the tenure your FD was active.
4. Loan Against FD
When you’re in a financial emergency, you can take out a loan against it rather than breaking your FD. A lot of FD schemes allow you to take out a loan against the deposit. Your loan amount can be less than or equivalent to 80% of the amount of your fixed deposit.
You can even use your FD as security when taking out a loan with another bank if it’s eligible.
5. Tax Threshold
Any interest you earn on your fixed deposits is taxable. However, your bank can only deduct TDS if the interest on all your FDs is more than Rs. 40,000 and Rs. 50,000 for senior citizens.
You can avoid this TDS if you fill a form 15 G or 15H as per your eligibility and submit it to your bank at the start of your financial year. In such a case, the interest on your FD will be added to your total income as “Income from Other Sources.”
6. Regular Income
If you choose the compound interest scheme, you can get your interest earned in your bank account at fixed intervals. This means you can get a regular source of income from your FDs.
7. Attractive Interest Rates
While the growth on an FD is not as high as other high-risk investments, you can still get a good interest on FD in a low-risk investment. You can get anywhere from 5 to 8 percent interest on your FD, depending on your deposit scheme.
Anyone can invest in an FD. All you need to do is check the interest on the FD scheme you are considering and compare it with similar schemes to get the best return on your investment.
A fixed deposit can help you save your money while you can use any interest compounded on the FD. Or, you can save your money and interest so you can grow your money till the FD matures.