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Benefits of Fixed Deposit in India Research Team | Posted On Tuesday, July 02,2019, 06:46 PM

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Benefits of Fixed Deposit in India



Fixed deposit allows the investor deposit a lump sum for a specified time period, at the prevailing interest rates. The fixed deposit is one of the most popular investment options, as it has consistently delivered good returns. It helps your principal amount grow due to the compounding interest and provides much higher returns on maturity.

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Benefits of Fixed Deposit in India

Given below are some of the benefits of fixed deposits in India: 

Guaranteed Rreturns: The returns on your investments are guaranteed. There is no limit on the investment amount in FD. You can invest whatever amount you want in a lump sum and get guaranteed returns on FD, at interest rates prevailing in the market. One of the main benefits of fixed deposit is that the returns are independent of market fluctuations. This is the reason why a majority of Indians prefer to park money in fixed deposits.

See Also: Best FD Interest Rates

Flexible Tenure: A fixed deposit is an investment tool, which can be used to fulfill both short-term and long-term investment goals. The investor can choose the tenure of the FD which ranges from 7 days to 10 years. If the prevailing interest rates are low, then you can choose to deposit the amount for the short-term. Invest for the long-term, when the interest rates are high. In this way, an FD can be used to maximize the returns. If you have surplus money, then you can split the amount into multiple FD’s across tenures.

Greater Returns Than Savings Bank Accounts: The interest rates on fixed deposits are higher than the saving bank account. The rate of interest is higher for FDs held for long-term. For example, a 5-year FD generates better returns than a 3-year FD. This is because the interest gets reinvested and enjoys compounding benefit.

A savings bank account offers interest depending on the minimum balance maintained each quarter in the savings account. The current rate of interest on a savings bank account is 3-4% a year, whereas banks provide an interest rate of 6.6% to 7.4% a year on fixed deposits.

See Also: How To Choose the Best FD?

Choose the Mode of Interest Payment: You can choose the frequency of interest payments on deposits. The interest is paid on a monthly, quarterly or yearly basis. In this way, a depositor can generate a monthly or quarterly income. In case you do not want an income, opt for a cumulative fixed deposit which allows the interest to get reinvested and offers much greater returns.

Avail Loan Against FD: Fixed deposits can also be pledged as collateral to avail bank loans. However, the loan must be obtained from the bank in which you have a fixed deposit. This is a better option than prematurely breaking your fixed deposit, to get money in urgent situations. Around 90% of FD amount is available as loan against FD. The depositor keeps earning interest on his deposits, even if a loan is sanctioned against the FD.

See Also: FD Interest Rates Calculator

Better Interest Rates for Senior Citizens: Banks offer better interest rates for senior citizens than normal investors. As fixed deposits are safe and offer capital protection, it’s immensely popular among senior citizens.  A higher interest rate also helps generate good monthly income in retirement.

Urgent Cash Rrequirement: Fixed deposit has specific maturity periods. However, they can be withdrawn before maturity in case of urgent cash requirements. This feature comes handy when the depositor is in urgent need of cash, like sudden medical expenditure or to recover from a business loss. Breaking an FD is easier than selling property when money is needed in urgent situations. You will have to pay a penalty, on premature FD withdrawal.

Joint Fixed Deposits: Fixed deposit can be opened in joint names. A primary depositor can avail a joint FD with children or spouse or parents. However, when FDs are held jointly, they need the signature of both the account holders for premature withdrawal or loan against FD.

See Also: What is meant by Fixed Deposit?

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