Fixed deposits (FD) are one of the most uncomplicated savings products. The ease of investment and their versatility make them a popular choice with most investors. Almost all banks and NBFCs offer fixed deposits to their customers. Depending on your financial goals, you can find the best FD for yourself and save money. Read on to find out how FDs help you save money.
How Do Fixed Deposits Work?
Apart from being universal and uncomplicated, FDs are also one of the safest investment products. They are a type of a term deposit; you invest a lump sum amount for a duration of your choice. The bank pays you interest on the invested amount for the chosen tenure.
You can choose a cumulative option, where you get the interest on maturity. If you choose the traditional choice, you earn monthly, quarterly or annual interest.
Different banks offer different interest rates on deposits for the various duration. You can research and find the best FD and invest accordingly.
How Can Fixed Deposits Help You Save Money?
It is a well-known fact that saving alone is not sufficient. You have to invest your money wisely so that it grows. FDs not only help you grow your corpus, but they can also help you save money.
1. Fixed Duration
FDs, as the name suggests, are for a fixed term. You invest your money for a pre-determined term; you cannot withdraw the funds like you can withdraw it from a savings account through a cheque or an ATM. There is an option of premature withdrawal, but you need to follow a process for it; this can help curb impulsive spending.
2. Premature Withdrawal Penalty
When you invest money, you choose the duration based on your requirements and the best FD interest rates offered by the bank. If you exit before the term ends, you will get a lower interest rate for your deposit; some banks may charge a penalty. This also dissuades from withdrawing and spending the money unless necessary.
3. Higher Interest Rate
Fixed deposits earn a higher rate than you can get in the savings account. An FD helps your earn more on your funds.
4. Loan Facility
Rather than making a premature withdrawal of your FD, you can take a loan against it in times of need. Banks charge 2 percent more than the interest they pay you on the deposit for the loan. The interest rate on loans against FD is lower than personal loan rates. Often when people need funds for various purposes, they take a personal loan. A loan against FD is a cheaper option than a personal loan.
5. Tax Saving
Tax-saving fixed deposits can help you save tax under Section 80C of the Income Tax Act. You can invest in tax-saving FDs to earn interest and save tax. Interest earned on an FD up to Rs 40,000 annually will not attract TDS. For senior citizens, this limit is Rs. 50,000.
What Are The Advantages Of Investing In Fixed Deposits?
There are many investment products to choose from for an investor. Investing in an FD offers the following:
Fixed deposits are available for different terms, starting from less than a few days. Depending on your requirements you can choose a suitable term.
You can withdraw your deposit or close it prematurely if required. The bank may charge a penalty, but it is possible.
Ease of investment
Opening an FD account is a simple process; it is easier to start an FD if you already have a savings account with the bank. You can open an FD online too.
Insurance of Deposits
Your Fd investment is insured up to Rs 5 lakh under the DICGC Act; earlier, this limit was Rs 1 lakh.
A well-balanced portfolio must have different types of investment products. Research well, find the best FDs as per your need, and invest your money wisely.