Why FD remains the preferred financial instrument for many investors

For those seeking assured returns without exposing their money to risk, a fixed deposit stands out as an excellent investment option. Moreover, should you need a loan from your bank, you can leverage your fixed deposit as collateral. Now that you have gained insights into the workings of fixed deposits, you may contemplate applying for one, ensuring thorough research and gathering essential data on the different fixed deposit instruments beforehand.

Here are 10 advantages that fixed deposits offer that make them the preferred financial tool for individuals with a limited appetite for risk:  

Allows small amounts

FD offers flexibility regarding the initial investment amount, making it an accessible option for investors with varying financial capacities. Starting with as little as Rs 1000, there is no maximum limit, allowing individuals to initiate savings with an amount that suits their budget.

Flexible tenure options

Investors have the freedom to decide the duration of their investment, ranging from as short as 7 days to as long as 10 years. Additionally, FDs can be renewed if necessary, providing a convenient way for investors to align their financial goals with their chosen investment tenure.

Loan against FD

An added advantage of FD is the ability to secure a loan against it without necessitating the premature withdrawal of the FD. Banks typically offer 90 to 95 percent of the total FD amount as a loan, with an interest rate slightly higher than that of the FD. In the event of delayed repayment, the outstanding loan amount is covered by the FD.

Immunity to market fluctuations

FD shields investors from the impact of market fluctuations. The interest rate applicable at the commencement of the FD remains constant throughout its tenure, providing investors with a clear understanding of the maturity amount in advance.

Tax benefit (five-year FD)

Investing in FD for a tenure of 5 years or more qualifies investors for tax exemption under Section 80C. However, for FDs with a tenure of less than 5 years, taxes apply. Additionally, if the accrued interest from the bank surpasses Rs 40 thousand in any of the five years, it becomes subject to taxation.

Guaranteed return

The investor knows exactly how much the money will grow in the desired timeframe.

The appeal of FD spans across demographics, as everyone seeks to safeguard their earnings while aiming for optimal returns. Recent improvements in FD returns contribute to its attractiveness as a secure investment. Notably, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage up to Rs 5 lakh on bank FD, ensuring the complete safety of the deposited amount, even in the event of a bank failure.

Low investment requirement

One can invest as low as Rs 500.

Higher return for senior citizens 

Typically, commercial banks offer about 50 bps higher returns to senior citizen customers.

Reasonably liquid investment 

An FD can be liquidated easily in case the investor is in need of funds.

Offers a higher return than a savings account

Fixed Deposits typically offer higher interest rates compared to regular savings accounts.