Posted on Dec 7, 2024
Who doesn't want safety and stability amid a world laced with chaos and uncertainty? And when it comes to hard-earned money, we are sure, there will be many seeking it. While you can put money in a wide range of investments that can potentially earn you massive returns over time, ignoring the safe shore of fixed deposits can eliminate the stable return you will get regardless of market scenarios. However, we will showcase here more reasons to invest in fixed deposits. But first, let’s have an overview of fixed deposits.
What are Fixed Deposits?
Fixed deposits are an investment banks and non-banking financial companies (NBFCs) offer to investors. As the name suggests, investors can deposit a specific amount for a specific period at the prevailing interest rate.
Fixed deposit interest rates depend on the deposit amount and period. These rates would be for amounts upto INR 3 crores and amounts above it. The minimum deposit required will vary from one bank to another. For example, HDFC Bank wants individuals to deposit a minimum of INR 5,000, while the same at ICICI Bank goes to INR 10,000.
Benefits of Fixed Deposits
Fixed deposit investments benefit you in more ways than one. Let's find out!
Guaranteed Returns Despite Market Ups and Downs
No matter how hard the market tumbles, there will be no effect on your fixed deposit investments. They will be safe as houses! So, if you book the FD at 9.50% per annum, and a year later, if the rate falls to 8% a year later, you will continue to earn at 9.50% per annum. Yes, the key lies in booking a fixed deposit with higher interest rates and for the period that allows you to achieve your financial goals. You can always rely on BharatFD's fixed deposit calculator to figure out the investment amount needed to achieve your goals.
Insurance Coverage for Fixed Deposit Investors
We all are emotional about money and rightly so! To protect the interests of depositors, the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures them for a maximum of INR 5 lakh should the banker wherein they deposit go bankrupt. The insurance facility is available for deposits made at public, private and regional rural banks. The DICGC coverage also applies to foreign banks running in India.
Fixed Deposit Interest Rates That Beat Inflation
Presently, fixed deposit interest rates are on the rise. Almost every bank's fixed deposit fetches you an interest rate of around 7.50% per annum for 3-5 years. Some of them even offer 9.30%, indicating exciting times for fixed deposit investors.
Senior Citizens Get Additional Interest Rates on Fixed Deposits
The benefits of fixed deposits in India also include higher interest rates for senior citizens. Banks typically offer them an additional 0.50% on their deposits. So, if the interest rate for general citizens for a specific amount and period is 8%, senior citizens will get 8.50% per annum.
Luxury to Choose from Several Banks with High-return Fixed Deposits
There are many public and private sector banks offering high-return fixed deposits to investors. These include prominent banks such as State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Yes Bank, IDBI Bank and IndusInd Bank. Emerging banks like North East Small Finance Bank, Shivalik, South Indian Bank, IDFC First Bank and AU Small Finance Bank are already grabbing headlines with higher fixed deposit interest rates of upto 9.30% per annum.
Flexible Tenure Options Allow You to Accomplish Both Short and Long-term Goals
Fixed deposits come with a period as short as seven days and as long as 10 years. The flexible tenure options are one of the top benefits of fixed deposit accounts. Such options allow investors to meet their various short and long-term goals. So, if you are looking to arrange margin money for your car, consider investing in the best fixed deposits. The margin money for a car can be around 10-30% of their price. For example, if you want to buy a car costing INR 15 lakh in three years, you need to accumulate around INR 1-2 lakh as margin money. A fixed deposit of INR 60,000-1,20,000 at a 9.30% interest rate will let you be there over three years.
Similarly, if you want to buy a home in seven years, you need margin money, the backup amount for successful home loan EMI payments (Should you face job loss during the loan tenure), and several other expenditures such as processing fees, property registrar fees, etc. For example, if you want to buy a property worth INR 60 lakh in 7 years, banks can finance upto INR 48 lakh only (properties with value above 30 lakh to upto 75 lakh are financed upto 80%). So, you need to pay a margin money of INR 12 lakh. However, since INR 48 lakh is the maximum home loan amount permissible, the margin money requirement may rise should a bank reduce the disbursal amount based on the overall property evaluation.
So, be prepared with additional savings to buy your dream home with ease. Besides, a fund for other non-financed portions such as processing fees and registrar fees will be required. You can create that fund with a fixed deposit along with other investment products. For example, if you invest INR 20 lakh in a fixed deposit for 7 years at 7.50% per annum, you will accumulate INR 33,75,397, which you can combine with other fruitful investments to buy a home.
Increased Liquidity
Fixed deposits offer you increased liquidity. You can avail of a loan upto 90% against fixed deposits from banks and other financial institutions. So, if you want a personal loan but don’t have a strong credit history, you can apply for a loan against a fixed deposit to get the required funds. You can even use the premature withdrawal facility to obtain the required funds before the proposed maturity date of a fixed deposit. It will, however, incur an interest penalty of 0.5-1% of your FD amount.
Custom FD Options
Fixed deposits are available in cumulative and non-cumulative options.
A cumulative fixed deposit is a product where the interest keeps accumulating. Investors get accumulated interest along with the principal amount on maturity. Those with a steady flow of salary income will like investing in this product.
Non-cumulative fixed deposits are those where the interest is paid to the investors at regular intervals. The payments can happen on a monthly, quarterly or yearly basis, depending on the frequency chosen by the investor. Those dependent on interest income will find this option suitable. These include retirees, housewives and even freelancers.
Tax Savings
Tax deductions also form part of the benefits of fixed deposits in India. However, not every fixed deposit offers tax deductions. You need to invest in tax-saver fixed deposits offered by banks. These deposits offer tax deductions of upto INR 1.5 lakh in a financial year. However, tax deductions apply to the deposit amount and not interest. The interest earned is taxable once it crosses the threshold limit. While the threshold limit for the general public is upto INR 40,000 in a financial year.
Moreover, these deposits come with a lock-in period of five years. It means investors cannot withdraw the amount before five years. You can invest a minimum and maximum of INR 100 and INR 1.5 lakh, respectively, in a financial year.
Conclusion
Fixed deposits have transcended from being just a safe investment. The benefits of investing in fixed deposits also include helping people accomplish their financial goals with higher rates, and loan and premature withdrawal facilities. Choosing the right fixed deposit aligned with your financial goals is the way to go. You can choose the same easily and effectively on BharatFD using its comparison tool and in-depth analysis. So, consider diversifying your investment portfolio with fixed deposits designed specifically to meet your needs.
Sources:
FD Interest Rates - Check Fixed Deposit Interest Rates | HDFC Bank
