6 Advantages of Having a Fixed Deposit Account: The first and foremost advantage of having a Fixed Deposit or FD account is that it provides higher interest rates as compared to standard savings accounts. An FD, a type of term deposit, locks an investment for a fixed period until maturity for which the investor receives regular interests.
Not only do individuals get to save and receive money, but they also get complete peace of mind as an FD account is considerably safer than other forms of investment like stocks, shares, and others.
Furthermore, opening a fixed deposit account is faster as well as easier; it can be created through a savings account, without needing to deposit additional funds.
In addition to the advantage mentioned above, a fixed deposit account comes with the following ones:
- Higher Interest Rates
Where the majority of regular savings accounts provide an interest rate of around 4%, FD interest rates start from more than 6% with tenor of at least 6 months/180 days. Some even offer interest rates of up to 6.75% for 91 days tenor.
Also, senior citizens can receive around 0.35-0.5% more interest than other individuals.
The interest rates differ with banks and financial institutions; some may offer satisfactory rates for short-term deposits while others may offer higher rates for long term accounts.
- Flexible Tenors
Banks and NBFCs provide fixed deposits that can have a tenor of 7 days to 10 years. The tenors are designed to suit every individual’s needs, cater to all business or personal requirements.
Is your daughter’s wedding due in 4 years? Create a fixed deposit account for that period, and at the end of its maturity, you will have ample funds for a Big Fat Indian Wedding. Further, if you are expecting, you can fix an amount for 3 years and put your child in the school of your choice.
Furthermore, as there are no limits to creating Fixed Deposit accounts, one can create multiple ones of them depending on their future goals.
- Income Tax Benefits
Even though the interest received on FDs is taxable, under section 80C of Income Tax Act, 1961, it enables one to save up to Rs.1,50,000. As of 2018, interest amounts of up to Rs.50,000 receives tax exemptions. In addition, senior citizens will get up to 50% exemption on interests on FDs from banks and NBFCs.
Further, creating multiple fixed deposit accounts can also help one save more on IT returns.
Not only just FDs, but u/s 80C can help one receive deductions from PPF, EPF, NPS, ULIP, LIC, and others.
- Easy Withdrawal
Although fixed deposit accounts have a particular tenor for maturity, investors can, however, withdraw the amount at any time. The individual has to pay the penalty for premature withdrawal, but it is considered reasonable.
Thus, fixed deposits are liquid and can play a vital role during crucial situations like medical emergencies.
- Loan Against FDs
In addition to premature withdrawal, one can also use FDs to receive loans against them. In case of secured loans, the fixed deposit account work as a collateral.
The account is pledged to the bank or NBFC for which an individual can get a loan of up to 60% to 70% of the fixed deposit. Some financial institutions can even grant a loan of up to 90% of the fixed amount.
FDs, considered as one of the safest debt instruments offer higher risk management option.
Investing in gold, mutual funds, ULIP, ETF, and others may offer higher rates of interest, but they come with significant risks when compared to FDs.
Thus, owing to the advantages mentioned above, FDs perform as a better investment opportunity than most other.
When looking for creating a fixed deposit account, NBFCs can provide their superior benefits. They offer attractive and competitive FD interest rates, and higher for senior citizens.
Individuals can choose from flexible tenors ranging from 12 to 60 months; a special 15-month tenor comes with higher interest rates compared to the 12 months one.
Their FDs are rated MAAA (stable) from ICRA and FAAA (stable) from CRISIL thus vouching for stability and credibility.
Their FD calculator provides an easy way to calculate the interest based on tenors so that one can chalk-out their investments beforehand.