Fixed Deposits —with their fixed tenure, reasonable interest rates, and easy access—are one of the most convenient ways to kickstart your investment portfolio.
But if you haven’t made up your mind, don’t worry. Let’s take a look at some of the FD (Fixed Deposit) advantages and disadvantages to help you with your decision.
Advantages of Fixed Deposit:
1. Safe Investment:
Unlike other high-risk investments like stocks, mutual funds, and debt funds, FD Interest rates aren’t dependent on fluctuating market rates.
2. Risk Factor:
An FD scheme comes with a minimum tenure of 6 months and a maximum of 5 years; this ensures that you safeguard your money and gain reasonable returns on it. The recent RBI regulation has made it compulsory for investors to draw up an insurance on FD investments. Each investor is insured for upto Rs.1 lakh on the account, and this amount includes both the principal and the interest accrued.
3. Loan & Credit Card:
Instead of pre-closing your FD and getting a penalty levied, when you need instant cash, you can simply take a loan against your FD. You can get a personal loan of up to 90% of the total FD value. Unlike other unsecured personal loans, you get lower interest rates when you secure your loan with your FD as collateral.
4. Flexible Interest Rate Payouts:
Depending on the term you choose, you’d gain interest at different intervals. You can either go with annual, monthly, or at-maturity alternatives, according to whatever suits your convenience. This cash flow would ensure that you gain a periodic income and get to reinvest that amount for other purposes. Some non-banking financial corporations like Bajaj Finserv offer an additional interest rate for senior citizens, up to 0.25% of the amount invested.
Disadvantages of Fixed Deposit:
1. Size of Returns:
Though an investment in FD gives you a guaranteed return, it’s still lower than other short term investments.
If you want to withdraw money whenever you need it, a savings account would be a better alternative. You’d be either charged a penalty if you withdraw amount from an FD before it completes its maturity period, or you might end up getting a lower interest rate on the amount.
For instance, when you invest in Bajaj Finserv’s Fixed Deposit, you would have to keep a minimum tenure of 1 year and avoid withdrawing within that period.
3. Tax Returns:
Interest earned through your Fixed Deposit won’t be tax-free; on the contrary, it falls under the taxable slab of your income. If your interest earned is higher than Rs.10,000, it will be deducted as TDS at the rate of 10%. To avoid this, you can either open multiple FD accounts in the same bank or in different banks.
To increase your tax benefits, you can go with Tax-saver Fixed Deposits. If you open a joint account, only the first holder of the deposit will get to avail the tax benefit as per the section 80C of the Income Tax Act, 1961.
Now that you know the key features and drawbacks of investing in an FD, take a call. Research current market trends, Use Bajaj Finance FD Calculator to calculate interest rates or maturity amount and different rates across the market before you sign up for an FD.