One of the most popular investment options for Indians has always been FDs. While the returns are certain, there is very little risk. Additionally, because fixed deposits are not linked to the market, they are a great option for people who aren’t as familiar with the capital market.
What exactly are fixed deposits?
A financial instrument with a fixed interest rate for a predetermined time period is known as a fixed deposit. Deposit tenure can be as short as seven days or as long as ten years (in some banks, twenty years).
When compared to saving money in a savings account, investors are offered a higher interest rate here, harry styles net worth 2021 resulting in higher returns.
Advantages of Investing in a Fixed Deposit in India The following are some of the primary advantages of investing in a fixed deposit:
Fixed deposits are one of the safest investment options on the market with guaranteed returns. FDs are not market-driven, unlike other investment options like mutual funds. FD investors receive a fixed interest rate for the duration of their investment. At the time of booking the FD, investors are aware of what to anticipate from their investment. Additionally, this aids in improved financial planning.
Encourages Savings Habit Saving is a habit that not many people excel at, but everyone wants a good balance they can rely on in times of need. The same can be extended with the aid of fixed deposits. People are less hesitant to invest in a fixed deposit account because there is no significant risk involved.
Additionally, because it is a liquid option, depositors are satisfied that, in the event of an emergency, they only need to break the FD early to resolve the issue. The penalty is insignificant and sometimes does not even apply (such as in some banks, where there is no penalty).
Do you want higher FD rates?
backed by Rs. Deposit Insurance An insurance policy of Rs. 5 lakh covers both retail and small finance bank fixed deposits. 5 lakh. DICGC (Deposit Insurance and Credit Guarantee Corporation), a Reserve Bank of India (RBI)-owned subsidiary, provides this protection.
DICGC steps in and pays Rs. in the event that the bank defaults, or goes bankrupt, and is unable to return the account holder’s savings or deposit amount. 5 lakh as reimbursement. Previously, this cover steve harvey net worth cost Rs. Rs. 1 lakh, which was recently increased. 5 lakh, according to the Union Budget 2020, which was made public on February 1, 2020.
Regardless of the FD deposit, even if it is less than the insurance coverage (Rs. 5 lakh), investors will be compensated in full for their investment.
Tax-Saving Option All banks offer tax-saving FD options to their customers. These options lower a customer’s taxable income, which in turn lowers the amount of tax that must be paid. Investors can contribute as much as Rs. 1.5 lakh of the money in a tax-saving fixed deposit that can be claimed as a deduction in accordance with Section 80C of the Income Tax Act of 1961.
These plans have a lock-in period of five years, after which no withdrawals can be made early (except in the event of the deposit holder’s untimely death).
Higher Fixed Deposit Interest Rates for Seniors Senior citizens can take advantage of higher fixed deposit interest rates. The majority of financial institutions, including non-banks, use this method. The standard FD interest rates are typically topped by 0.25 percent to -0.65 percent at the additional interest rates for senior citizens.
There are two ways to pay fixed deposit interest: non-cumulative as well as cumulative The term “cumulative option” refers to the practice of accumulating (or building up) interest, which is then paid out at maturity through the “compounding effect,” also known as interest on interest. Contrary to the cumulative option, the non-cumulative option has no cumulative effect. The depositor can choose whether the interest is paid on a monthly, quarterly (every fourth month), half-yearly, or annual basis here.
Non-cumulative options work well for people who want regular income; otherwise, it’s best to go with a cumulative option so you can get the most out of compounding.
Facility to Take a Loan against FD Instead of taking out a high-interest unsecured loan, holders of fixed deposits have the option to borrow against their own fixed deposit to pay for an emergency. Over the applicable fixed deposit rate, a small amount of interest is charged (between 0.5 and 2 percent).
This way, one does not have to give up the FD interest or pay high interest rates like they would with an unsecured loan. Additionally, FD need not be broken.
Simple to Understand As secure as FD is, it is also simple to understand. for the sum of Rs. There will be a profit of Rs. 1 lakh over one year at an interest rate of 8%. 8,243 (quarterly compounding). This amount cannot be reduced by market fluctuations. In contrast to equity funds and other investment instruments, the FD does not require daily monitoring. In FD, there are no dips related to the market.
However, there will undoubtedly be a decrease if the depositor withdraws the FD amount prior to maturity.