Long-term saving plan is definitely a great investment option to secure the future financially. Plus, it provides financial assistance at times of unplanned emergencies. This is the reason why fixed deposit plans are getting quite popular in India. They are safer than any other investment option and promises good returns on maturity.
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Fixed Deposit, or FD, is a term deposit offered by both mainstream banks and non-banking lending institutions. Under the plan, an investor deposits a lump sum amount into the bank account at an agreed rate of interest for a fixed period. During the fixed tenure, the principal amount remains locked for the given period, while the interest is credited at regular intervals or can be reinvested, subject to investor’s choice. Upon maturity, a lump sum amount is paid to the investor.
Fixed deposits are, thus, high-interest yielding investment option to look out for. Flexi Fixed Deposits is another form of term deposit, which is actually a combination of FD and DD (demand deposit).
Flexible tenure – An investor can choose the tenure (ranging from 15 days to 10 years) for how long they wish to keep the FD account. However, experts believe that a longer tenure reaps better returns as the interest is calculated for the long years.
Assured returns – Unlike other investment options, an investor can rest assure of guaranteed returns from an FD account. There is no risk involved; in fact, market fluctuations don’t affect the assured returns.
Interest rates – Compared to any other savings or investment option, fixed deposit interest rates are reasonably higher.
One-time investment – No need to pay premiums every month, just make a one-time investment and you’re good to go. This way you can have dual savings both in long-term and short-term basis.
Loan facility – Just in case you need immediate funds, you can avail instant loan against the fixed deposit.
Premature withdrawals – Some banks offer premature withdrawal facility to improve better flexibility to access funds. However, the bank may imply certain charges for the premature withdrawal facility.
Encourage savings habit – In this inflation era, following a good savings habit can make you financially healthy in the long run. Fixed deposit is one such investment cum savings account that stresses on the importance of savings. FD account keeps your money safe and locks the funds for a fixed period. This way the investor can ensure greater returns in the long run.
For example, an FD of Rs. 200000 invested for 3 years at 11% interest rate. At the end of the tenure, an investor would receive returns worth around Rs.270000.
Assured returns –Fixed deposit is a safer investment as it promises assured returns on maturity. There is no risk involved of losing the money. Also, unlike other investment tools, FDs are not driven by market fluctuations. Just make sure not to withdraw the FD in between the tenure period.
Higher interest rates –Unlike other investment options, the rate of interest on FD accounts is comparatively higher. For instance, banks offer up to 6% ROI on savings account, whereas the FD interest rates start from a minimum of 7% and can go up to 15%.
Tax benefits –Fixed deposits are liable for tax deductions under Section 80C of the Income Tax Act. An investor can claim tax benefits for a maximum of Rs. 150000 for the amount invested. However, interest earned on FDs is taxable.
Flexible mode of payment –An investor has the flexibility to choose the frequency (monthly, quarterly, or yearly) and mode of interest payment. This can be also treated as another source of income to the investor. Alternatively, investors can also go for a cumulative FD option to reinvest the interest into FD to ensure even better returns.
FD is definitely a safer investment instrument to put your hard-earned money within, but it is essential to research at your end to associate with the right institution that is offering better returns. So, here are some quick tips to help you zero down on the right deal with greater benefits.
Compare banks – Having surplus money doesn’t mean that you can invest without considering the background of the bank or financial institution. Therefore, it is significant to do enough research and compare interest rates and other terms offered by different banks. It is better to go for the bank offering higher interest rates and flexible terms.
Split your funds – If you wish to make the most out of your investment, then it’s best to split your investment amount either across different FD accounts or different banks. The benefit of splitting your investment is that you can earn returns in the varied rate of interest; plus, in case you need to withdraw an FD, you would not have to break the entire investment deposit. This way other FD accounts will continue to reap assured returns.
Opt for different tenure – As the interest rate varies from bank to bank, taking the smarter move, it would be great to opt for different tenure as well. This way you can maximise your returns at different intervals while keeping the financial arrangement for any untimely emergency.
Cumulative vs. Non-cumulative – It has been a long-time debate as whether to choose a cumulative FD or go for non-cumulative FD. So, before zeroing down on the options, let’s first understand what these terms stand for. In a cumulative FD, an investor can re-invest the interest earned to reap compounding benefits and higher returns on maturity. On the other hand, in a non-cumulative FD account, the interest is paid to the investor on regular intervals. However, a non-cumulative option is generally suitable for pensioners or investors who require alternative income on a regular basis.
Final words: Fixed deposit is one of the most popular investment instruments due to its safest features and assured return schemes. It is a no-risk investment. So, if you’re planning to put your surplus money into the safest investment plan, it’s good to go for an fixed deposit account.