Fixed Deposit (FD) Advantages in India

Fixed Deposit (FD) Advantages in India

One of the best ways to invest for Indians has always been with a fixed deposit and there are Fixed deposit advantages. There isn’t much risk, and you’re sure to get your money back.

Also, fixed deposits aren’t tied to the market, so market volatility doesn’t affect them. This makes them a great choice for people who don’t know much about the capital market.

What does “Fixed Deposit” mean?

A fixed deposit is a type of investment where the interest rate stays the same for a set amount of time. The length of a deposit can be as short as 7 days or as long as 10 years (20 years in some banks).

Here, investors get a higher interest rate, so their returns are higher than if they kept their money in a savings account.

Also, Read:- How to Terminate SIP?

Fixed Deposit in India: Advantages

Here are some of the most important things that make fixed deposit investments ace-up:

  • A safe way to invest with returns that are guaranteed:-

Fixed deposits are one of the safest ways to put your money to work. Unlike other investment options like mutual funds, FDs are not market-driven. Investors in FDs get a rate of interest that stays the same for the duration of the FD. Investors know what to expect from their investment at the time they book the FD. This also helps make better plans for the money.

  • Encourages people to save:-

Not many people are good at saving, but everyone wants to have enough money to get by when they need it. Fixed deposits help the money last longer. People are less afraid to put their money into a fixed deposit account because there isn’t much risk involved.

Also, since it is a liquid option, depositors have a sense of satisfaction that if an emergency arises, all they need to do is break the FD prematurely and remedy the emergency. The penalty is negligible and sometimes counts next to nothing (i.e. no penalty in certain banks).

  • backed with Rs. 500,000 in deposit insurance:-

Fixed bank deposits at both retail banks and small finance banks are insured for Rs. 5 lahks. The Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of the Reserve Bank of India (RBI), provides this protection.

If the bank defaults, which means it goes bankrupt and can’t pay back the savings or deposit amount to the account holder, DICGC steps in and pays Rs. 5 lacks as compensation. This cover used to be worth Rs. 1 lakh, but as of the Union Budget 2020, which came out on February 1, 2020, it is now worth Rs. 5 lakh.

No matter how much was put into an FD, even if it was less than the insurance cover of Rs. 5 lacks, investors will get the full insurance coverage amount.

  • Ways to save on taxes

All banks offer FDs that help customers save on taxes by lowering their taxable income. This, in turn, lowers the amount of tax that has to be paid. Up to Rs. 1.5 lakh can be put into a tax-saving fixed deposit, which can be used as a deduction under Section 80C of the Income Tax Act, 1961.

These plans have a lock-in period of 5 years, which means that you can’t take money out of them before that time (only in case of the untimely death of the deposit holder).

  • Seniors get better rates on FDs:-

Rates of interest on fixed deposits are higher for people over 65. Most banks and financial companies that aren’t banks also use this method. Most of the time, the extra interest rates for seniors are between 0.25% and -0.65% higher than the standard FD interest rates.

  • Changes in how interest is paid:-

Fixed deposit interest is cumulative or non-cumulative. The cumulative option means interest accumulates and is compounded and paid on maturity. Non-cumulative is the opposite of cumulative. The depositor chooses monthly, quarterly (every 4th month), half-yearly, or annual interest payments.

Non-cumulative alternatives are good for regular income, but cumulative ones are better for compounding returns.

  • Loan against FD:-

Fixed deposit holders can borrow against their deposits to finance emergencies instead of taking out a high-interest unsecured loan. 0.5%–2% interest is added to the fixed deposit rate.

This avoids paying high-interest rates on unsecured loans and compromising on FD interest. Breaking FD is unnecessary.

  • Clear

FD is safe and simple. 8% interest on Rs. 1 lakh for 1-year yields Rs. 8,243. (quarterly compounding). This price won’t change. Unlike equities funds, FDs do not require daily monitoring. FD has no market-related drops.

If the depositor withdraws the FD amount before maturity, it will drop.

Who should put money into a fixed deposit?

  1. FD will work well for you if you don’t want to take market-related risks and are happy with decent returns.
  2. If you have taxable income and want a safe investment that will save you money on taxes, you should think about FD. It lets you get up to Rs. 1.5 lakh in tax breaks under Section 80C of the IT Act.
  3. If you’re retired and want a steady income, put your savings in different FD plans at different banks and choose the option that doesn’t add up. In this case, you will get regular interest payments, which will be your income after you retire.
  4. If you are a housewife and you have some money to invest, you should look into the FD option. This is because there isn’t much risk with a fixed deposit.

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