Several Indians consider a Fixed Deposit to be the best investment option and an incredible savings instrument. Throughout the tenure of a Fixed Deposit, the sum of money remains locked in and earns interest. The tenure of a Fixed Deposit can range anywhere between a week to 10 years.
Almost every bank enables you to create a Fixed Deposit account, but the interest rate keeps varying. Opening a Fixed Deposit is quite simple, and you can do it offline as well as online. But before you begin investing, understand the different Fixed Deposit advantages and disadvantages.
Advantages of Fixed Deposits
The different advantages of a Fixed Deposit are as follows:
One of the major reasons why people prefer investing their money in a Fixed Deposit is the guaranteed returns. Different banks offer a specific Fixed Deposit interest rate, and it is clearly stated on their websites or branches. It ensures that customers understand how much they will earn from the Fixed Deposit. You can easily use a Fixed Deposit interest calculator to determine which bank offers the most attractive rates.
You can invest in specific types of Fixed Deposits to enjoy tax deductions. For instance, you can invest in the five-year tax-saving FDs from AU Small Finance Bank. The FD scheme ensures that you can enjoy tax deductions of up to Rs 1.5 lakhs with a lock-in period of five years.
The tenure of a Fixed Deposit can range between seven days to ten years. But if you want a high interest Fixed Deposit, you should choose a long lock-in period. The interest rate will be high when you invest in a long-term Fixed Deposit of five to ten years. Depositors can also extend the FD for the same period of time after maturity.
One of the major benefits of a Fixed Deposit is that you can avail of a loan against it. Different banks will charge different interest rates on loans against FD. But it is extremely beneficial during financial emergencies as you can lend up to 95% of the Fixed Deposit amount.
Opening an FD is a simple procedure and requires minimal documentation. You can open an online FD account or visit the nearest branch of your bank. Also, there is an instant credit facility.
Disadvantages of Fixed Deposits
The different cons of investing in Fixed Deposits are as follows:
One of the major disadvantages of a Fixed Deposit is that it offers a fixed interest rate throughout the tenure. Therefore, depositors won’t be able to enjoy higher rates when the interest rates in the market rise up.
Due to the lack of a dynamic interest rate, a Fixed Deposit won’t be able to counter inflation risks.
The funds in your Fixed Deposit will remain locked in for a specific period. You won’t get access to the funds until you withdraw them prematurely. But you will have to bear a penalty charge for premature withdrawal.
The interest earned on a Fixed Deposit falls under the taxable income of the depositor. The interest on a Fixed Deposit attracts a TDS of 10% when it is above Rds. 40,000. For senior citizens, TDS is deducted from FD interest income of more than Rs 50,000.
After outweighing the pros and cons of FDs, you will realize that opening one isn’t a bad idea. If you are looking for a high interest rate on FD, AU Small Finance Bank will come to your rescue. Senior citizens are entitled to up to 0.75% higher interest rates on FDs than normal citizens.
Apart from offering high interest rates, AU Small Finance Bank also offers maximum convenience while opening an FD. You can open your Fixed Deposit online or visit the nearest branch to complete the procedure. So, open your FD account now and enjoy lucrative returns.
Q.1 Are Fixed Deposits a safe investment option?
Ans. Fixed Deposits are a safe investment option for conservative investors. If you have no appetite for risk and want to safeguard your funds all the time, you should invest in a Fixed Deposit.
Q.2 What are the advantages available to senior citizens for investing in Fixed Deposits?
Ans. When senior citizens invest in Fixed Deposits, they are eligible for higher interest rates. Moreover, the tax exemption limit on FD interest is also higher for senior citizens.
Q. 3 What is the minimum and maximum tenure of a Fixed Deposit?
Ans. The tenure of a Fixed Deposit account can range from seven days to ten years. The interest accumulated will be higher for a longer lock-in period
Q.4 How can I find the Fixed Deposit interest rate offered by banks?
Ans. The Fixed Deposit interest rate offered by banks is enlisted on their website. You can also visit the nearest branch of your bank to learn about FD interest rates.
Q.5 Can I make withdrawals from an FD account before it matures?
Ans. You are entitled to premature withdrawals from your FD account. But you will have to bear a fee for premature withdrawal.