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Benefits of Having Fixed Deposit Accounts Research Team | Posted On Friday, May 17,2019, 03:59 PM

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Benefits of Having Fixed Deposit Accounts



A Fixed deposit is a popular investment option in India. FDs have never lost their popularity. In India, it is still one of the most sought after investment options. It offers several benefits like capital protection, higher interest rate than savings bank account and very low risk.

The reasons why a fixed deposit is immensely popular among people are given below:

Assured Rate of Return:

One of the main benefits of fixed deposit is assured returns. FDs are not affected by market volatility. Investments like mutual funds and equities offer higher returns, but at high risk. A fixed deposit allows investors save and increase the investment (They earn interest on the investment). However, the rate of interest depends on the tenure and the prevailing rates in the economy.

Investors Can Avail Loans on FDs:

Fixed deposits can be pledged as collateral to obtain loans in emergencies. There are times when you are in urgent need of money. An FD can help you in such situations. You can avail a loan from the bank where you have the fixed deposit, by pledging your FD as collateral. Banks offer up to 90% of the deposit as loan. This feature helps you avoid premature withdrawal on FD.

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Benefits of Having Fixed Deposit Accounts

Fixed Deposit Saves Tax:

There are several kinds of FDs available in the market today like regular FD, flexi-FDs and tax saver FDs. A normal fixed deposit provides the facility of parking your money for a fixed period of time. Interest on FD is compounded periodically.

FD interest is taxed as per income tax slabs. If your total income is above Rs 10 Lakhs a year, you fall in the 30% tax bracket. Interest income from FD is added to taxable income and you are taxed as per income tax slabs. TDS at 10% is deducted from interest income if it exceeds Rs 40,000 a year. It’s Rs 50,000 a year for senior citizens. TDS rate is 20% if you don’t provide PAN Card.

SEE ALSO: What is meant by Fixed Deposit?

Encourages Savings:

The Fixed deposit helps nurture the savings habits among professionals and non professionals alike. People working in the organized sector can use unutilized funds to create a corpus and then invest it as a lump sum in an FD.  Nowadays, banks offer high interest rates and encourage investments in FDs, online.

You can directly invest in fixed deposits through net banking account and transfer funds from your salary account. For people engaged in the unorganized sector, a fixed deposit not only encourages saving, but also inculcates financial discipline via-s-vis investments.

The Amount can Easily Be Withdrawn:

Fixed deposits have a lock-in period and a specific maturity date. However, the money can be withdrawn at any point of time by paying a pre-withdrawal penalty. The penalty amount is specified by the banks and is generally deducted from interest income.

Liquidate FD prematurely if you need money in a hurry. FDs are more liquid than real estate.

Fixed Deposits are Flexible:

Investors can choose the tenure for which they want to invest their money in FD. Fixed deposits are flexible as they come with varied maturity periods ranging from 1 year to 10 years. An investor can choose the tenure of investment based on financial goals.

If you have surplus money, then try to invest across FDs with varied maturity periods. This will help you avoid premature withdrawals. The money is well distributed and helps you achieve financial goals.

SEE ALSO: Types of Fixed Deposits

Better Rates for Senior Citizens:

FDs offer higher interest to senior citizens. This is the reason why fixed deposits are a popular investment option among senior citizens. FDs help senior citizens meet daily needs in retirement.

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