Home Business Why Is Investing In FDs A Smart Investment Move?

Why Is Investing In FDs A Smart Investment Move?

fixed deposit

Working hard to earn money is paramount. If you’re working so hard to earn money, shouldn’t your money also work hard for you? This brings in the whole concept of investment. Investing lets you take charge of your financial security. You can grow your wealth, alongside generating an additional income stream for post-retirement days.

What is a fixed deposit?

The market is flooded with numerous ways that you can invest your money. One of the safest ways, that also fetches brilliant returns, is putting your money into a fixed deposit. Ideal for risk-averse investors, fixed deposits accumulate the deposited amount over a fixed period. Hence, the name. Because of the fixed tenure, an FD yields higher interest rates in comparison to a normal savings account. If you ever face a cash crunch, FDs can immediately come to your rescue!

A fixed deposit account allows investment in flexible tenures of up to 10 years. There is no upper limit for the maximum deposit. Senior citizens are eligible for additional rates of interest. Identity proof and address proof are the only documents required for opening an FD account. You must be an Indian resident, NRI, a minor, senior citizen, company, partnership firm, individual/joint investor, society/club, or a sole proprietor to be eligible for opening an FD account in India.

How can you invest in an FD?

With the advent of technology, now you need not even physically visit the bank for opening an FD account. Online FD investments have eased out this process big time. There is no limit to the number of FD accounts that a single person can open. You can have as many as you want. You just need to have an existing account in a particular bank and you’ll be good to go.

Let’s have a look at the simple 4 step procedure to be followed:

  • Step 1: Log in to your net banking account
  • Step 2: Choose the “open FD” option
  • Step 3: Select the criteria (such as branch, amount, tenure, nominee name, etc)
  • Step 4: Download the FD receipt

And Voila! You just successfully opened an FD account with your bank. Wasn’t that super easy?

Types of FD accounts

Normal fixed deposits

  • Money deposited for a fixed tenure
  • Tenure can range from 7-10 years
  • Higher interest rates than a normal saving account

Tax-saving fixed deposits

  • Tax exempted on the principal deposit amount up to Rs. 1.5 lakh in a calendar year
  • Lock-in period of 5 years
  • Only one-time lump sum deposits allowed

Senior citizen fixed deposits

  • Only individuals above the age of 60 are eligible
  • Senior citizens usually get 0.25% to 0.65% higher interest rates
  • Tenures are flexible

Cumulative fixed deposits

  • Interest compounded quarterly or yearly and paid at the time of maturity
  • Savings grow substantially

Non-cumulative fixed deposits

  • Interest paid out monthly, quarterly, half-yearly or annually (as per your choice)
  • A better bet for pensioners seeking a regular source of income

Did you know that you can even get a loan against your fixed deposit? Yes, you heard that right! You can conveniently finance all your expenses with a loan against FD. Opting for a low-interest loan will save you from liquidating your investments. You can also choose to open a bank FD jointly with your spouse, parent, or sibling. In this case, the first account holder has to pay TDS (Tax Deducted at Source) over the returns. The interest is also paid for the first holder’s account.

Benefits of having an FD account

Safe and steady returns

FDs have a fixed rate of interest, which means that even when the market fluctuates, your investment is safe and secure. Irrespective of the market situation, you continue to earn interests that you receive back on maturity along with the principal amount.

Customizable

Did you know that you can start an FD with an amount as low as Rs. 5000? Not just this, there’s no upper limit on how much you can put in an FD! Isn’t that amazing? You can even choose the tenure of your FD (short term, mid-term or long term) according to your convenience.

Easy liquidity

If you’re ever faced with a cash crunch, you can withdraw the principal amount of your fixed deposit. You receive whatever amount of interest you have accrued for that period. The FD withdrawal process is fairly fast, so you can access your cash any time that you need it on an urgent basis.

Capacity for collateral

Did it ever happen to you that you’re looking for a loan but falling short of collateral to offer? Fixed deposits help you pledge up to 95% of your loan amount! The loan amount depends on the terms and conditions of the bank and differs from one bank to another.

Tax benefits

Your fixed deposit investment qualifies as tax-deductible under Section 80C of the Income Tax Act, 1961. This section allows individuals to claim deductions up to Rs. 1.5 lakh if they opt for a tax-saving FD. Once the FD matures, investors can reinvest the sum for another term.

Insured savings

A fixed deposit takes care of your hard-earned money by all means. The Deposit Insurance and Credit Guarantee Corporation (a subsidiary of the RBI) insures an investor’s deposits for up to Rs. 5 lakh. This means that even if your bank faces a financial crisis, your FD remains safe.

Fast online process

With technology taking over almost every sector, opening a fixed deposit account is now just a matter of minutes. Investors need not visit bank branches or follow a lengthy documentation process. They can submit their documents and keep track of their online FD.

With a promise of assured returns and the versatility of flexible tenures, FDs are one of the most beneficial investment tools. Completely safe and secure in fixed deposits, your hard earned money will reap amazing benefits and help fulfil your financial goals.

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