A fixed deposit is a popular investment instrument in India. Many people consider it one of the most secure investments and it is considered as a way to multiply one’s savings. A fixed deposit is a type of deposit in a bank or non-banking financial institutions where your deposited lump sum amount is kept for a fixed tenure chosen by you. The money thus deposited earns a rate of interest that is compounded over a period. The duration of the deposit could be from a few days to several months and even years. The deposit earns a rate of interest varying from bank to bank. You can open a fixed deposit in any bank easily. Bank interest rates can be compared before selecting the bank in which you will keep your money in the FD. You can check SBI FD interest rates in case SBI is your choice. You should study the advantages and disadvantages of putting your money in an FD account.
Advantages of Fixed Deposit
There is an assured rate of return. The rate of interest is declared by the bank to the customer at the very onset and the bank doesn’t go back on its promise. There is a guarantee. Your return on investment is assured within a fixed period. There is a periodic calculation of interest on the deposit. You can make use of the fixed deposit interest calculator available with the bank. You can calculate your projected income in the future using this calculator. It will help you decide if you will select this bank or not.
There is a comfort provided for the small depositors. The bank cannot deduct any taxes on your interest earned till it crosses the Rs 10, 000. The tenure of the deposit is flexible and the tenure depends on you or the depositor. There is a choice of redemption of the fixed deposit. You may apply for the redemption after the completion of the agreed period or you may get it extended by another period of the same number of months or years. So, there is a possibility of redemption in case you need the cash. There is easy liquidation of deposit. It can be liquidated online too where the money is transferred to your savings account. You may get loans against your fixed deposit. This is another merit of a fixed deposit. Any bank will give you a loan for any purpose if you show them your fixed deposit certificate. The bank will take your certificate and will return it after your loan is repaid.
There are five clear advantages of having a fixed deposit account.
- Higher rate of interest
A return from the FD is higher than that from a savings bank account. There are other advantages too.
- Assured return
You will get an assured return from a fixed deposit. This return is more than a return you get from a savings bank account. Today, the returns form an FD range between 7 % and 8.5 %. The return varies from tenure to tenure. You shouldn’t withdraw before the maturity date.
The FDs provide you with the flexibility of the period for which your money is deposited. The period is ranging from 7 to 10 years. Various tenures differ from bank to bank. You can open an FD account whether you’ve got an account of savings with them or not.
- No risk of losing
You may take the risk of losing your money or making financial losses if you invest in the financial markets. Though they give you relatively higher returns, there is a lot of risk of losing money. In the FDs, there is no such risk because it’s not affected by the market.
- Getting a loan
You may get a bank loan easily if you have an FD with a bank. You may face financial emergencies anytime. During these crises, you may pledge your FD certificate and get yourself financed for anything that you wish. Financial emergencies do arise unexpectedly. If you have got an FD, you can ward off those difficulties and you can tide over the crisis. The banks provide a loan amount of about 90 % of the amount in your FD. You may get a 100 % loan also, but in that case, the interest rate will be higher.