The benefits of fixed deposits are the reasons behind their soaring popularity. If you are an investor who is risk averse, this financial tool can be of great help for you to receive assured returns without taking risks.
Apart from its traditional advantages, the Reserve Bank of India’s (RBI) decision to increase the repo rate has also increased the interest rate on deposits. So, if you take the applicable interest rate in the past few years, FDs offer great interest rates and a chance to increase your earnings.
This makes it a perfect time for investing in FDs.
Other benefits of FDs
Fixed deposit accounts are a popular choice due to their numerous benefits. The following section is a brief guide on the advantages of FDs.
The return is fixed for a one-time investment
Investment in an FD is a one-time affair. Once you invest the money, you can relax and wait for maturity because this investment option is not affected by market fluctuations like others. The interest rate earned on an FD is pre-determined and can’t be altered once the account has been opened.
So, when the tenure is fixed, and the interest rate is also determined, the return you get from the FD is also fixed, and you know how much you will earn upon maturity.
Flexibility of tenure
FDs also come with the flexibility of tenure. Generally, an FD’s tenure varies from 7 days to 10 years. It means you can start for some days or go for long-term investments. You can negotiate the term with the FD issuer depending on your financial aspirations and the objective behind the FD.
Premature withdrawal of funds
An FD is a one-time investment where you get the earned amount after the tenure is completed. But financial emergencies arrive unannounced, and for such situations, you can opt for a premature withdrawal of your investment. Some providers charge a penalty for an early withdrawal, so you should clear this term before investing in an FD with a particular bank or Non-Banking Finance Company (NBFC).
Loans against FD
Loans come in the form of blessings when we need them. Taking a loan separately can delay the availability of cash. In that case, you can apply for a loan against your fixed deposit account. Usually, 90% of the FD can be given as a loan. This would also require less time as all your documents will already be submitted. So the procedure can be completed relatively quickly and smoothly.
Different types of FD options are available. One of them is the non-cumulative FD. In this case, you can take out the interest gained on the FD at regular intervals. The interest can be taken out either quarterly, monthly or yearly. This facility is best for people who have limited income or for pensioners. This way, you can continue your daily expenses smoothly while enjoying the advantages of an FD. Another interest payout option is the cumulative interest payout, where you receive the total interest earned following the maturity of an FD.
Another benefit of FD is that it enables you to earn an income tax deduction. If you invest in a tax-saving FD, you can claim a tax deduction of up to Rs 1.5 lakh under Sec 80C of the Income Tax Act, 1961. This can save you a significant amount of tax money. The only thing to remember about this FD is that it has a lock-in period of 5 years, before which you cannot withdraw.
Auto renewal facility
Another plus point about the FD is that it can auto-renew investments. The terms need to be specified at the beginning of the investment, and your FD provider will auto-renew the investment after the current FD attains maturity.
Steps to open an FD account
You can open an FD account online and offline. Both processes are straightforward and take minimal time.
For offline applications, you must visit an FD provider branch. There you can talk and negotiate all the terms of your deposit. After you submit the required details, your account will be opened.
Or you can complete the application online.
- Visit the website of the selected issuer
- There, search for the ‘fixed deposit application’.
- Fill up the application form
- Submit the required documents like id proof, address proof or any other documents your FD provider may request
- After completing the application procedure, your provider will look into it.
- After your account is created, you will get a response in your registered mail id or phone.
Now you know why you should opt for an FD and how to open one. Next, you should know the critical parameters to check before opening an account.
- Interest rate – The interest rate remains the same throughout the tenure of the FD. Hence, a high rate of interest entails a high return.
- The credibility of the issuer – FD is a one-time investment. You should make sure that the provider is a credible one before finalising anything.
- Terms and conditions – You should also note if there are any additional terms and conditions associated with the FD that may affect your investment.
An FD has always been a wise investment choice, and it also has a host of varieties to cater to the different needs of different people. It is easily accessible and can be trusted with the money. So, if you are considering investing in an FD, now is the time to take the lead. However, make sure you research and compare the market thoroughly before landing on a decision.