Investing has become an important part of people’s life; no matter which age group we belong to, investment in a proper place always reaps fruits. Investing also ensures that your savings can grow at a rate that can later beat inflation rather than keeping it idle in a bank account. When speaking of investment, there are a lot of investment options available which include fixed deposits, PPF, and other government schemes.
What is a Fixed Deposit Scheme?
A fixed deposit is a kind of deposit in which we can park our savings by investing it for a certain tenure in banks and other NBFCs (Non-Banking Financial Companies). The process of opening an FD account is very easy- the customer has to choose a certain tenure (which usually ranges from as short as 7 days to 10 years) and deposit their hard-earned money for that particular duration. Banks provide the respective interest rates based on the tenure chosen. Usually, the longer is the tenure, the more is the interest earned on FD.
A fixed deposit has a lot of advantages, especially for senior citizens who invest in fixed deposits (FDs). That’s usually because it is easy to understand and is being done for generations. One more reason being the higher interest rate. Most of the banks provide around 0.50%-0.65% higher interest rates to senior citizens over the regular rates that are provided to general citizens.
What makes FD an ideal investment option today as compared to others?
Better flexibility and higher gains
When you choose to invest in other deposit options such as recurring deposit, for instance, you are required to stay invested for a minimum of 6 months to a year. FDs have an edge over RDs in this aspect, as depending on the issuer, you can invest for as short a duration as a week, or as long a tenor as a couple of years. Further, a lump sum investment via an FD translates into a higher maturity return.
Superior returns in comparison to Senior Citizen Savings Scheme
Senior Citizens Savings Scheme is one of the preferred ways for senior citizens to plan their finances for retirement. It offers a regular income, with an interest rate of 8.60%. While this seems to suffice the needs, when you look at certain FDs returns, you might reconsider your thoughts. For instance, with NBFCs like Bajaj Finance, you can earn FD interest rates up to 8.35% as a regular customer and an interest of 8.70% as a senior citizen. The additional interest means that you can multiply your money much faster and set up an income stream for your golden years by opting for periodic payouts.
Better liquidity when compared to PPF
A key benefit FDs have over Public Provident Fund is that the former allows for monthly, quarterly, half-yearly, or yearly interest payouts. This is not the case with PPF as your investment is locked for a long tenure and partial withdrawals are allowed only after 5 years, subject to certain conditions. On the other hand, periodic payouts from FDs allow you to access funds at regular intervals to meet planned or unplanned expenses. With liquidity available periodically, you can manage your cash flow efficiently without any hassle.
Higher security as compared to mutual funds
When you invest in mutual funds, your money is exposed to volatility and risk as these are market-related products and this is because your money is being invested directly into the market. This may generate ample returns over time, but in case of a market low, your finances will certainly see the ups and downs. However, when you opt for a reliable NBFC FD that has high credit ratings, you can completely mitigate the risk.
All the banks in India provide their customers with an option to save tax under tax-saving FD options which can immensely help in bringing down their taxable income, which in turn, reduces the tax to be paid too. Investors can put in up to a sum of Rs. 1.5 lakh of the amount in a tax-saving fixed deposit which can be claimed in deductions under section 80C of the Income Tax Act, 1961.
These schemes come with a lock-in period of 5 years, i.e. no premature withdrawals can be made before 5 years (however, it can be done only in the case of the untimely death of the deposit holder).
On a closing note
Investing in an FD has certainly a lot of advantages and can provide a good income stream throughout the life of the investment. Although one downside of fixed deposits is that they have low-interest rates compared to other investment tools but given the security and guaranteed return, fixed deposits are indeed an ideal option for those who want a more convenient way of earning more money. A lot of banks provide the best FD rates in the market, but it is highly recommended that you do your own due diligence before investing.