A Fixed Deposit (FD) gives a higher interest rate than savings and can be set up with minimum fuss. It is safe, secure, and simple to understand. This is why it is the preferred option for so many poor and middle-class families to invest.
Fixed Deposit or FD, in short, is availed by millions of Indians every day. What is an FD? It is a deposit for a fixed term, also known as tenure. If you break the tenure, you get less than the amount accrued to you.
All public sector banks and reputed financial institutions such as PNB Housing Finance Ltd offer fixed deposits ranging from two weeks to 10 years carrying the best FD rates.
Who uses FD for only two weeks? It is a facility used by corporates who, at times, park crores of cash that is temporarily in their possession (such as before paying TDS to the government).
Why is Fixed Deposit (FD) Popular Way to Invest?
- Assured and safe – This is what worries a middle-class investor most. Is the return safe and nearly guaranteed? The FD process is guaranteed to a large extent by the government since they are a significant shareholder in public banks.
- Choice of tenures – You can select the time period for an FD. The best FD rates do not vary much with time. The highest and lowest prices differ only 0.5% between short term and long term savings. This makes it possible to save with an objective in mind. Such as creating an FD now for maturity in nine years when the offspring will be in college and need funds.
- Choose how to receive interest – You can do two things with the annual interest you earn. Those who depend on interest income may withdraw it. These typically include senior citizens. In this case, the principal does not grow. Others want their investment to multiply and have the interest added back to the principal.
- Tax Benefits – There is a particular type of FD known as Tax Saving FD. Under Section 80C of the Income Tax Act, the interest on such an FD process is not taxable up to INR 150,000. This places it at par with Public Provident Fund, and it also has a lower lock-in period. When you compare it to National Savings Certificates, this type of FD is far better because it allows payment of interest at regular intervals. The tenure for such FDs is five years.
- Benefits for senior citizens – Senior citizens can save excess of INR 50,000 over and above that provided by Section 80C by availing of Section 80 TTB benefits. This provision is effective from Budget 2018 and has enormously benefited those who are retired and could use a little extra cash.
- Easy liquidity – The most significant possible advantage is that it is risk-free yet can be dissolved. If you need funds in an emergency, you can liquidate your FD in less than an hour. Thus there is no worry that you will not be able to cover the expense for an emergency.
Conclusion
With so many advantages, it is no wonder that the humble fixed deposit(FD) is still the chosen path of so many when it comes to securing their financial future. It is ideal for those who are just beginning to invest as it requires no unique understanding and can be opened at any bank branch in a few minutes.
Anjali Singh
Hi, I am Anjali Singh, a professional Financial Analyst. I have done MBA in Finance and worked in many finance organizations. I have worked on top financing firms for the past 6 years. Recently I am working as a financial consultant and writes on various blogs related to loans & finance.
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