- Fixed Deposits are a tried and tested form of investment for retail investors
- Fixed Deposits are ideal for investors with a low-risk appetite
- Various types of FDs are Bank FDs (fixed and recurring) and Corporate FDs
- Option to avail tax exemption under Section 80C
- Senior citizens enjoy a higher interest rate
From housewives to corporates and small businessmen to teenagers, the humble Fixed Deposit is for everybody. Over the years banks have offered several savings and investment products. Yet, nothing is as popular as a Fixed Deposit (FD).The most distinguishing feature of Fixed Deposit is the safety of the principal amount. It provides guaranteed returns at low risk. While some Fixed Deposits, like tax saving Fixed Deposits do not allow premature withdrawals, most Fixed Deposits can be liquidated before maturity.
Here are some things to keep in mind while choosing a Fixed Deposit:
1. Interest Rate :
This is one of the most important consideration while investing in a Fixed Deposit. A higher interest rate means that you earn more. The interest rates vary as per the tenure and the highest rates are generally around the 12 months mark. Some banks also offer differential interest rates based on the amount you wish to invest.
2. The Credibility of the Institution:
Fixed Deposits are generally offered by Banks, NBFCs (Non-Banking Financial Companies) and Corporates. Ensure that you place your hard-earned money with an established and reputed entity. The safety of your principal and timely payment of the interest is your key take-away.
3. Ease of Operating:
Filling forms and visiting bank branches is too old school! Look for an organization that allows you to book and manage a Fixed Deposit online. This way, you can quickly invest your idle money at a tap of a few buttons and even liquidate one in case you need the funds on a short notice.
Here are some reasons to consider Fixed Deposits:
1. Low Risk:
A term deposit is suited for investors who have a low-risk appetite and seek steady returns. Investors have the option to receive the interest earned in monthly or quarterly pay-outs or receive a lump-sum amount at the end of the deposit tenor.Investors also have the option of premature withdrawal. You can avail a term deposit for a duration of minimum 7 days, up to a maximum of 20 years.
2. Can Help Save Tax:
A fixed deposit can offer dual benefits of Tax Saving under section 80C and long-term returns. As per the provisions of the prevailing Indian Income Tax Act, up to Rs. 1,50,000 invested in tax savings Fixed Deposits is exempt from income tax.The minimum investment period for this variant is 5 years and partial or pre-matured withdrawals are not possible.
3. Offer More to Senior Citizens:
Most banks offer senior citizens an additional 0.5% interest on Fixed Deposits. Investors can choose between periodic or lump-sum interest pay-out options. Partial as well as pre-mature withdrawals are also allowed.
4. Build a Savings Habit:
A Recurring Deposit allows you to automatically invest a fixed amount at pre-determined intervals. This helps you get into the habit of saving. Since the amount is directly debited, the temptation to skip a month can be avoided.