FDs or Fixed Deposits are considered to be safe, secure and invaluable tools for investments that are provided by both leading Indian banks and NBFCs (non banking financial companies). FDs help investors in securely depositing their hard-earned savings and investments for earning stable and good returns over the pre-specified duration in question. Yet, when it comes to higher rates of interest and the added benefits, fixed deposits are naturally the port of call for investors if you bring savings accounts into the comparison framework.
FDs are known as term deposits for all practical purposes of the word and the word is such in the mainstream banking and financial sector since these deposits are maintained for a fixed duration. This is usually within a period of 7 days till 10 years at the most. You should also know that these deposits have proper coverage under the DICGC (Deposit Insurance and Credit Guarantee Corporation). This insurance coverage is provided up to a maximum amount of Rs. 5 lakh. This is one form of security, to say the least. FDs have also retained their popularity amongst a large section of senior citizens in India and other investors who have a lower risk appetite but wish to steadily grow wealth for the future. They do not have any entry barriers as well and are accessible for most people as well. FDs also have variants including 5-year tax saver fixed deposits. Here, you have to mandatorily adhere to the 5-year stringent lock-in period although you will get tax deductions on your investments up to Rs. 1,50,000 under Section 80C.
Want to know why an FD (Fixed Deposit) is comparatively preferable to a regular savings account? Read on!
- Guaranteed and steady returns with higher rates of interest- When you invest in a fixed deposit, you are guaranteed to earn a higher rate of interest. This will help you steadily accumulate sizable wealth for the future. Even with a deposit for a shorter duration, you will earn higher returns in comparison to savings bank accounts. Interest rates on FDs are always free from risks since they are not subject to changes due to market fluctuations or developments.
- Risk-free and convenient- FDs have completely secured deposits of investors. The DICGC, the fully-owned RBI (Reserve Bank of India) affiliate will have the responsibility of paying Rs. 5 lakh (per bank) in case the institution comes to a scenario where there is a lack of liquidity. Even this is something that is really rare and not anticipated to happen anyway. The Government and RBI have a responsibility towards the banking and financial services sector and they will always safeguard institutions and nurse them back to health through strategic measures.
- A comparatively affordable option for investment- You can commence your investment journey by deploying a minimum sum of Rs. 100. A majority of the leading banks in India enable a minimum deposit amount of Rs. 1,000 as well.
- Flexibility in Tenure- Investors may choose to invest money for a duration of 7, 15 or 45 days or even 1-2 years. You can go up to 5-10 years as well and the tenure will vary from one banking institution to another. You can choose a tenure-based upon your own requirements.
- Higher Returns Overall- FDs are amongst the most coveted options for investments in the country. FDs given by NBFCs and banks are preferred by investors since they offer guaranteed and considerably higher returns as compared to savings bank accounts. The rates will depend upon the tenure, the financial institution, and its policies, and investor’s age.
- Loan facility against the FD – Investors who require money urgently for fulfilling any major requirement, may apply for a loan upon their FDs. Rather than opting for personal loans with higher rates of interest, investors may apply for loans against their FDs at a considerably lower rate of interest and the loan amount may be repaid as a lump sum amount or even via installments. There will be zero processing fees charged as well.
- Credit Card Facility- You can always avail of a secured credit card facility against the fixed deposit. The credit limit will be worked out on the basis of the FD amount of the borrower that he/she is ready to mortgage.
- Partial/Premature Withdrawal- FDs that have the premature withdrawal option will enable more investors to exit prior to maturity. Additionally, investors have to compulsorily pay banks premature penalties up to 1-2% for withdrawing the FD amounts before the term of the deposit.
- Higher rates of interest for senior citizens- FDs are really essential sources of financial support for properly enjoying the years after retirement as far as senior citizens are concerned. They come with slightly higher interest than regular investors. The additional mark-up may be between 0.25-0.75%.
These are some of the top advantages that FDs hold over regular savings accounts.
Follow our WhatsApp channel
