A Fixed Deposit (FD) is one of the most popular investment options in the current market, especially after an increase in the repo rate by the RBI. The primary USP of this financial product is its ability to deliver guaranteed returns, which are considerably higher than that of a savings account.
Since it is a term deposit, the money remains with the financial institution for a period, which can be as low as 7 days to as high as 20 years. Furthermore, owing to its fixed interest rate, as long as you adhere to the relevant terms and conditions, you receive income on fixed deposits.
What further adds to its charm is that the fixed deposit minimum amount is Rs.10,000. As a result, anyone can take advantage of this investment option to accumulate wealth. So, read on to learn more about this financial product.
Table of Contents
Different types of fixed deposits
- Regular FDs
- Cumulative and Non-cumulative FDs
- Tax-saving FDs
- Senior citizen FDs
- Flexi FDs
Four reasons to invest in an FD
Apart from the FD minimum amount not being that high and being easy to invest along with the scope of earning high interest, here are some reasons why you should opt for this investment vehicle –
- One of the most significant advantages of fixed deposits is that it guarantees a return and exposes the investor to little or no risk. You can begin setting money aside for savings with an FD account, which will come in handy in the future.
- Your deposits can be easily withdrawn while still being secure. A minor penalty must be paid to withdraw prematurely from most FDs, except tax-saving FDs, and it is a quick and simple process. Additionally, you can close your FD account online if you want to.
- Furthermore, for most banks, you may open an FD online with just a few clicks. A new FD account can be started in a matter of minutes. With most reputed financial institutions, you can submit your KYC paperwork online and start an FD account.
- Another major advantage of FDs is their ability to save income tax. If you are investing in a tax-saving FD, you can claim income tax deductions of up to Rs. 1.5 lakh per annum. This is available under Section 80C of the Income Tax Act of 1961.
How to invest in fixed deposits?
Here’s how you can begin investing in FDs –
Evaluate and compare FD rates
You should be aware that the interest rates on FDs vary from one bank to another. For example, NBFCs and small finance banks could provide a higher interest rate than commercial banks. So before investing, make sure you choose the best option for yourselves.
Select a suitable deposit term
An FD scheme typically has a tenure of 7 days to 20 years. You should choose an appropriate deposit period based on your needs and financial goals.
Decide how often the interest needs to be paid out
Once you’ve chosen the FD tenure, choose how often you’d like to receive interest payouts. Based on that, you can opt for a cumulative or a non-cumulative FD.
Choose a deposit method
Finally, choose a deposit method that is best for you. Most financial institutions allow holders of FDs to deposit funds by visiting their nearby branch or through internet banking.
You can submit an FD application and invest in a plan when you understand these aspects.
Parting thoughts
FDs are a good choice for conservative investors because they won’t accept anything less than a guaranteed, fixed return with great safety. Additionally, investors who have now retired and require a stable monthly income mainly rely on bank FDs. While security and fixed returns appeal to retirees, its simplicity makes it an excellent option. Additionally, everyone can use FDs to create emergency funds that are accessible in a matter of days.
So, it is safe to say that fixed deposits are a well-rounded investment option that is hard to beat and would be great for you to begin your investment journey.
