A fixed deposit or FD is one of the most popular investment options available in the market. Banks & NBFCs provide short-term and long-term FDs, which means that one can deposit money and earn a specified rate of interest during the tenure of the deposit.
A fixed deposit account varies from a regular savings account by providing higher rates of interest. A short-term fixed deposit typically has a maturity term from 7 days up to a maximum of 12 months. FD interest rates are dynamic, can fluctuate, and also vary from one financial institution to another.
The most important criterion for FD is not to withdraw the funds before the maturity period. If so, be prepared to pay the penalty for the premature withdrawal. For example, if you invest in a two-year FD which is yielding you a 10% interest rate. You withdraw after eight months, and the bank will provide you with the interest rate applicable for eight months. Additionally, a penalty charged will affect the returns as well.
The challenge for anyone interested in opening an FD is to find the highest FD rates prevalent in the market. Here’s why FD is a short-term investment option for higher returns:
1. Tax Savings
Be it the working class or self-employed, they would need to pay a substantial amount of taxes annually. By opening an FD account and investing, one could save taxes as per the 80 C section of the Income Tax Act. As the fixed deposit also provides higher returns compared to other investment options, many opt for the highest FD rates available.
2. Higher Returns & Flexibility
Fixed deposit enables investors to earn higher interest on their surplus funds. Though liquidity in fixed deposits is lesser, one can look for higher rates of interest, which are higher in the case of company fixed deposits. Also, an FD is renewed easily.
3. Safety & Stability
Many consider fixed deposits to be the safest investment option that provides better stability. Also, returns on fixed deposits are assured as there is no risk of loss of principal. One can opt for periodic interest payouts, to help you manage your monthly expenses as well. Market fluctuations don’t affect fixed deposits, thereby ensuring greater safety of investments.
4. Additional Advantages
- Having an FD account also means that one can avail a loan on FD without any guarantor or paperwork as the risk for the bank is relatively lesser here.
- While the financial centers prefer long-term investments, short-term FD also provides good returns.
- Short-term investment options comprise Recurring Deposits, Short-term FD, Post Office Time deposits, Sweep-in FD, and so on. One can choose the best investment options as per their requirements.
- Most banks and NBFCs provide flexible tenure, an easy application process, less documentation, etc. thereby making it hassle-free for the customers.
- If you open a fixed deposit account in a well-rated financial institution, you generally get good returns which you can convert into periodic interest payouts that can cover your monthly expenses,
Conclusion
Given the variety of options and ease of things, one can opt for fixed deposits as they serve a higher purpose in financial planning.
