Why Should You Invest in Fixed Deposits?
You should, if predictability and stability in your financial status is something that entices you.
In the current scenario in the banking and finance sector, there are innumerous opportunities for investing your surplus funds. Hence, the most common question asked by interested investors is this- is Fixed Deposit a good investment?
Before we tell you what is good or not good for you, and because we realize that every investor would have differing interests towards their investments, let us first take a look at some of the features of Fixed Deposit investment schemes.
This is intended to:
- Help in the understanding of the mode of investment
- Provide a fair ground for comparison against other investment methods
You can also use an FD calculator to find out how useful investing in an FD scheme would be.
Some key features of Fixed Deposit investments are:
- Time Period- Fixed deposits are offered by most banks and financial institutions for a wide-range of tenures, ranging from 7 days to up to 10 years. To determine how much interest your investment might accrue over a period, you can use an Fixed Deposit Calculator.
- Amount of Investment- Although the amount invested depends largely on the investor, it is to be noted that that particular sum has to be deposited at once. (This is one of the criteria to differentiate a FD from a regular savings account.
- Interest Rates- The interest rates on FD vary with the difference in norms of banks and financial institutions. While some offer a rate of 8.5% (per 1L/ p.a.), others may go as high as 9.80% (per 1L/ p.a.). All interests are compounded according to the time-period preferred by the investor (like monthly, quarterly or yearly) and are directly transferred to the savings account of the investor.
- Withdrawal of FD- Fixed Deposits can be withdrawn at the time of maturity, for the best benefits and no penalties. They can even be renewed if the investor wishes to. Partial or pre-mature withdrawal is allowed, however, with the disadvantage of penalties and lesser benefits.
Now let us tell you why you should invest in Fixed Deposit schemes.
What’s in it For Me?
A couple of key benefits of investing in Fixed Deposit accounts are:
- Saves Taxes: Is Fixed Deposit taxable? Yes, they are. In fact, investing in Fixed Deposit to save income tax is one of the most preferred allurements of the scheme. The interest earned on Fixed Deposit investments can save a considerable sum for the investors, as per the Income Tax Act, 1961. Based on your specific tax slab, you can calculate your returns in advance to plan your finances better.To begin with, FDs are eligible for TDS only when the annual income exceeds Rs.10,000. If you have FDs that go beyond this limit, you can avoid paying TDS by splitting them up and putting them in FDs across different lenders. You can also enlist the help of a FD Calculator which will help you calculate the interest after maturity and also stop the deduction.
- Fixed Returns: The earnings of compound interests is a periodic gain for the investor.
And the principal amount can be withdrawn at the time of maturity.
- Credit Enhancements:
Banks offer loans, secured credit cards, additional loans on existing loans and many other forms of credit based on your Fixed Deposit account. Such credits, if used effectively, can greatly enhance your credit score thereby making you a more loan-worthy person.
- Scope of Emergency
At a decided charge suggested by the bank, the investor is also allowed partial withdrawal or premature withdrawal of funds. This proves to be beneficial for the investor in case of emergencies.
Now that we have skimmed through some of the benefits of investing in Fixed Deposit accounts, we are in a position to compare Fixed Deposits with other forms of investments.
Why Choose a FD Over Other Alternatives?
You may wish to invest in a Fixed Deposit scheme if you intend to:
- Get some good benefits out of your surplus funds without exposing the amount to the volatility of risks in the market
- Save taxes while building your managing your credibility in the market without the hassle of getting into loans or other unsecured forms of credit.