A Fixed Deposit (FD) is one of the sub-types of term deposits that is one of the safest investment instruments and is preferred by investors worldwide who want to build wealth without taking unnecessary risks.
But what sets the best-fixed deposit plans apart from other options? Well, the benefits it has on offer are the reasons behind it. So, let’s take a look at them.
How fixed deposits work?
Before moving on to the benefits of an FD, let’s understand how it works first. A fixed deposit can be considered a loan given to a bank or a financial institution. After you have successfully invested in an FD, the bank promises to return the invested amount at the end of the maturity period, with interest. Additionally, the bank may use this money to lend to other borrowers and charge them interest.
It’s a fact that the tenure of the FD regulates the interest that is offered. A 7-day FD will offer a lower interest rate compared to a 1-year FD, which is done to make up for the financial time risk. Simply put, investing a rupee today is worth more when compared to its value after a year. That is because of inflation.
Seven major benefits of FDs and how you can use it
Let’s now talk about the major benefits of fixed deposits, making them popular among investors.
Here are seven major benefits of fixed deposits-
You receive fixed returns
Your FD’s interest rate is fixed, so regardless of the state of the market, your investment is always safe. Also, according to the payment option you select, you will continue to earn the fixed interest amount, or fixed returns, on a fixed date.
There is capital security, and your invested amount is always safe
You don’t have to be concerned about capital degradation when using FDs, and your funds remain in the bank while promptly paying your due interest. Additionally, you can always receive your entire investment back when the FD matures, so you never have to suffer any investment loss.
Customisable investment plans
Due to the flexible and customisable investment plans, anyone can now open an FD. With no maximum limit, you can now open an FD for as little amount as Rs.5,000-10000.
Easy withdrawal option available
You can use your fixed deposit when you’re short on cash, which is a great advantage for investors. As per the bank regulations, you may withdraw the principal of your FD and any interest you may have earned at any time you like. Also, you can immediately access your money because the FD withdrawal process is very quick.
Helps saving taxes
Section 80C of the Income Tax Act of 1961 allows individuals to claim up to Rs.1,50,000 rupees from their taxes. However, this is applicable only if you invest in a tax-saving fixed deposit, which banks and post offices commonly provide. Also, your tax liability is significantly reduced with this kind of investment.
You are guaranteed insured savings
Did you know that your deposit is insured up to Rs.5,00,000 by the RBI subsidiary Deposit Insurance and Credit Guarantee Corporation (DICGC)? This implies that your FD is safe even if your bank experiences financial difficulties.
Investing in FD is a one-time effort that is entirely hassle-free
Finally, the most crucial benefit of a fixed deposit is that it is a one-time effort, and you do not need to monitor the market after you have invested. Additionally, there is no jargon involved, which makes opening an FD simple for someone who is unfamiliar with saving and investing.
Knowing the different benefits and usages of best fixed deposit plans may help you create a strategy to safeguard your financial future. An FD allows you to save money for any purpose, such as for your child’s higher education, retirement plans, or contingency reserve.