Fixed Deposits - 5 Key Benefits that Make it a Trusted Investment Instrument

Posted by John Judge on December 10th, 2020

A fixed deposit is a financial instrument offered by financial institutions that promise a guaranteed rate of return to the investor for a fixed tenure. Ranging from 7 days to 10 years, the investors have the option to choose the tenure based on their financial goals and liquidity needs. One of the oldest forms of investment instruments, FDs, have stood the test of time among investors of all ages. What makes it such a great option? Let’s find out.

1. Zero-Risk Saving + Investment Plan

A fixed deposit promises guaranteed returns and carries minimal to no risk to the investor. Preferred by most investors for its zero-risk, it is a great starting point if you wish to start saving. With an FD account, you can start putting aside your savings while it also helps you earn a guaranteed rate of interest. The announcement in the Union Budget 2020 about increased insurance of Rs 5 lakhs by the DICGC (Deposit Insurance and Credit Guarantee Corporation), RBI has made it even safer. This same limit was up to Rs 1 lakh until now.

2. Easy Liquidity

While they are safe, liquidating your deposits is easy as well. Most FDs barring, tax-saving FDs can be withdrawn prematurely by paying a small penalty. Moreover, the process is quick and easy. You can close your FD online using your bank’s net banking portal.

3. Better Interest Rate than Savings Account

A savings account helps you earn interest on the balance maintained. However, the interest rates of FD are comparatively higher. Some banks offer interest rates on FDs up to 7% or even more.

4. Build Relationship with your Bank

The relationship with your bank helps you get premium services and can help you when and if you apply for a loan. Banks usually prefer to do business with individuals who already have a banking history with them, and a fixed deposit account can help you when you’re trying to find the best deals on loans or other banking products and services.

5. Tax-saving Option

Under section 80C of the Income Tax Act, fixed deposit investors can deduct up to 1,50,000 against the investment made from their taxable income in a year. This makes it a great tax-saving tool while helping you earn guaranteed returns. However, the tax-saving deposits come with a mandatory 5-year lock-in period and cannot be withdrawn before that under any circumstances.

Opening an FD Account

FDs offer great benefits to the investor, and a new FD account can be opened within minutes. Choose a reputable bank that offers an attractive interest rate and submit your KYC documents. Most banks allow you to open a deposit account online with just a few clicks. Make sure you select the right pay-out option and renewal option before you start investing.