Fixed deposits (FDs) offer stability and guaranteed returns, making them a preferred investment choice for countless investors, especially senior citizens seeking regular retirement income. This article discusses what FD is and the key benefits offered by fixed deposits, spanning safety, liquidity, and tax savings around income payout options.
What is FD?
Fixed deposit is a financial product where investors deposit a lump sum amount with a bank or other financial institution for a fixed time. In exchange, the institution pays a fixed interest rate during the entire tenure, ranging from 7 days to several years. At maturity, investors receive the invested amount and the assured interest earnings, regardless of market fluctuations. This makes fixed deposits suitable for risk-averse investors looking for stable returns.
Advantages of Investing in an FD
Some advantages of Investing, followed by bank FD interest rates:
1. Guaranteed Returns
The singular factor positioning fixed deposits as an ideal investment for conservative investors is guaranteed returns. When investing, the FD amount, tenure and fixed deposit interest rates are clearly specified upfront by the IDFC FIRST bank without any ambiguities. The returns are assured irrespectively of underlying market movements. This enables investors to definitively ascertain their earnings in advance, allowing better financial planning. Risk-averse investors specifically prefer parking funds in FDs over market-linked instruments, as later returns can fluctuate over time.
2. Flexible Tenures
Fixed deposits provide investors with the liberty to select investment tenures matching their timeline needs. One can invest for short durations ranging from 7, 15 or 30 days for temporary cash surpluses to longer terms like 5 or 10 years to achieve long-range targets. Tenure flexibility also helps counter interim liquidity needs efficiently through laddering and parking monetary surpluses across staggered FDs of varying timeframes. The lumpsum principal investment remains secured and is returned by the bank on maturity as contracted.
3. Higher Interest for Senior Citizens
Banks usually offer additional premiums of up to 0.5% over card rates to senior citizens investing in fixed deposits. This higher rate is a primary vehicle for retirees to earn stable, regular payouts to support recurring expenses after stopping active employment. The guarantee element also provides perfect peace of mind. IDFC FIRST Bank allows earning up to 8% returns through special FD schemes for seniors. This reason positions FD returns favourably compared to fickle small savings schemes and annuity plan returns getting frequently revised based on changing rate cycles.
4. Loan Against FD
Investors can readily get loans against their FDs up to 90% of the deposit amount limit. This helps unlock funds to navigate interim expenses like medical bills or home revamps without fully redeeming FDs rather than incurring early termination charges. Loan disbursals are quicker against FDs compared to traditional financing. The funds also offset higher interest charges payable on credit cards or personal loans for the same financial needs.
5. Tax Benefits
Specific tax-saving fixed deposit schemes with a 5-year mandatory lock-in period facilitate tax deductions for investors under the 80C clause, subject to a maximum cap. This exemption directly helps reduce overall tax incidence. Further, the maturity proceeds and regular interest payouts from FDs only attract tax at slab rates. Compared to market-linked investments, fixed deposits score higher due to low tax leakage, enhancing overall returns.
Conclusion
Fixed deposits help investors realise stability in returns and insulate savings from market unpredictability while offering added levers for liquidity enablement if the need arises for risk-averse citizens nearing retirement age or ultra-high-net-worth individuals looking to park a portion of wealth securely, allocating funds across FDs of varying durations aids in improving overall portfolio returns. Their simplicity and reliability make them indispensable in prudent wealth management approaches.