Fixed deposits?
Why are we even talking about them, aren’t they a relic from the past?
Yes, we hear you. In a world where cryptocurrency and NFTs run rampant, fixed deposits do seem a little old school. But if we were you, we wouldn’t factor them out just yet.
No, FDs won’t make you rich overnight, but they will help you sleep easy. After all, the investing world is complicated, and it gets more so by the minute. In many ways, fixed deposit investments are the one remaining stable pillar in this complex world. They’re simple to understand, and one of the safest, most reliable options out there, due to their guaranteed returns.
Remember how earlier this year, expectations were high when Paytm listed their IPOs in the market, with people scrambling to get their share of the prize cow. The following crash was one that shook the country, and resulted in an unexpected level of financial loss to all involved. This is one of many examples of how the dynamic nature of the market can take one by surprise.
Contrast this to changes in FD interest rates, which occur gradually and are often announced in advance, giving you ample time to make your financial decisions based on expected changes.
This predictability makes them especially relevant for young investors, who might want to start their investing journey off on a low-risk pursuit. Either way, whether you wish to invest in a fixed deposit or not, it’s important to know what your options are when it comes to personal finances
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Before we tell you exactly why FDs are still in the running as a viable investment option, let’s take a look at what they really are.
Index:
- What is a fixed deposit?
- Types of fixed deposit
- Benefits of fixed deposits
- Guaranteed return
- Senior citizen perks
- Tax benefits
- Tailor-made to your goals
- The bottom line
What is a fixed deposit?
A fixed deposit investment, as the name suggests, is an investment option where you deposit a fixed sum of money for a specified time period, at the end of which you receive your original sum + the interest that has accumulated over the years. Fixed deposit interest rates are higher than standard interest rates, which means you can expect a bigger payout than a savings account.
Types of fixed deposit
While there are many different kinds of FDs, each offering its own perks and benefits, here are the main 6 ones that you should be looking out for:
- Standard FDs: The basic FD plan, where money is deposited for a fixed period, with a pre-determined interest rate.
- Corporate FDs: These FDs are for corporates as opposed to individuals, and have the highest interest rates.
- Tax-saving FDs: Through tax-saving FDs, you can avail tax exemption up to Rs. 1.5 lakh a year, on a lump-sum deposit.
- Cumulative and non-cumulative FDs: In cumulative FDs, the interest is added onto the principal sum, and compounded over the years, whereas in non-cumulative FDs, the interest is paid out periodically to the account holder.
- Senior citizen’s FDs: As the name suggests, senior citizen FDs are for individuals above the age of 60, and come with a higher interest rate than standard FDs
- Flexi FDs: These FDs can be linked to your savings account, giving you the interest benefit of FDs as well as the liquidity of savings accounts.
Benefits of fixed deposits
- Guaranteed returns
The winning factor for FDs is that they are the most reliable investment option. Since fixed deposit interest rates are not subject to market fluctuation, you’ll know exactly what to expect out of your money at the time of withdrawal. This helps with accurate financing when you’re setting your financial goals.
2. Senior citizen perks
One of the key perks of FDs for senior citizens is that account holders above the age of 60 can avail of higher fixed deposit interest rates. This is an important consideration as it lends a considerable investment advantage to the account holder. Not to mention, senior citizens tend to have a lower risk appetite since they are at a stage in life where their finances are settled.
3. Tax benefits
If you roll your eyes at every mention of shelling out taxes, then this perk is for you. With tax-saving fixed deposits, your deposit will be eligible for tax deductions of up to 1.5 lakhs per year. These benefits should be kept in mind while comparing the pros and cons of fixed deposit investments with other schemes.
4. Tailor-made to your goals
With the variations a fixed deposit investment offers, you will be able to tailor-fit your FD to your financial plans. For example, if you prefer regular payouts over getting a lump sum, you can opt for a periodic return plan. You can also plan out your deposits, and choose to put in monthly investments over depositing a one-time amount.
The bottom line
Fixed deposit investments are one option out of many. There is a myriad of possibilities out there, you could invest your money in liquid funds or try your luck at the stock market. Fixed deposits are one of the only options where you get guaranteed, reliable returns, but all these options have their own pros and cons.
Arguably, fixed deposits offer lower returns than some of the more attractive investment options, but there are a lot of factors to consider, such as your financial goals, your income, and the amount of risk you’re willing to take. There is no one-size fits all approach to investing. Additionally, you don’t want to be putting all your eggs in one basket, you can invest some amount in an FD as well as some in the stock market, depending on how you want to play your cards.
If you’d like to learn more about investing in FDs, or discuss the nitty-gritties of the stock market, come sign up for Finance Pass: Personal finance made easy. We’ll teach you everything finance-related, from budgeting to investing, and emergency funds to taxation. It’s time to confidently step forth, take charge of your finances and #RaiseYourPower.
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