Fixed Deposits (FDs) are a favored investment avenue for individuals aiming to securely grow their savings. This financial tool entails depositing a lump sum with a bank for a specified period, ranging from months to several years, in exchange for a guaranteed interest rate higher than that of a regular Savings Account.
Here's a breakdown of how Fixed Deposits work:
Investment and Returns: Upon depositing money, the bank starts accruing interest based on the duration of the deposit, which can span from seven days to ten years. While premature withdrawals are possible, they may attract penalties. At maturity, the principal sum along with accrued interest is credited to the account holder's bank account.
Flexibility in Tenure: Fixed Deposits offer flexibility in choosing the investment duration, catering to varying financial needs. Whether for short-term liquidity or long-term wealth accumulation, FD's can align with different financial goals.
The stability and benefits:
Risk-Free Saving + Investment Solution: A fixed deposit promises guaranteed returns with minimal to no risk, making it an excellent choice for starting savings. With an FD account, you can set aside savings while earning a guaranteed interest rate. The recent announcement in the Union Budget 2020 about increased insurance of Rs 5 lakhs by the DICGC (Deposit Insurance and Credit Guarantee Corporation), RBI, has further enhanced its safety, compared to the previous limit of Rs 1 lakh.
Easy Liquidity: Despite being safe, liquidating your deposits is straightforward, with most FD's (except tax-saving ones) allowing premature withdrawals upon payment of a small penalty. The process is quick and can be done online through your bank's net banking portal.
Higher Interest Rates than Savings Account: While a savings account earns interest on maintained balances, FD's typically offer higher interest rates. Some banks offer FD interest rates up to 7% or more.
Establishing Relationship: Establish Relationship with your Bank Maintaining an FD account can strengthen your relationship with the bank, potentially leading to better services and advantageous deals on loans or other banking products.
Tax saving: Tax-saving Option Under section 80C of the Income Tax Act, investors can deduct up to 1,50,000 against FD investments from their taxable income annually. This not only serves as a tax-saving tool but also ensures guaranteed returns. However, tax-saving deposits come with a mandatory 5-year lock-in period.
Opening an FD Account Opening an FD account is quick and easy, usually taking only a few minutes. Choose a reputable bank with attractive interest rates, submit your KYC documents, and select the preferred pay-out and renewal options before investing.
Conclusion
When deciding on the ideal FD tenure, consider your financial objectives, as short-term goals may benefit from shorter FD tenures, while long-term goals, especially for tax-saving purposes, are better suited for longer tenures.
In summary, Fixed Deposits provide financial stability and ease of use, allowing individuals to opt for online or offline FD openings based on their preferences and understanding of this investment vehicle.