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Are Fixed Deposits a Good Investment?

Joan Mathews Joan Mathews 12 July 2019

Fixed Deposit is one of the most traditional forms of investment avenues in India. Read this article to find out whether such an investment is a good option for you.

Are fixed deposit a good investment

The main reason for the popularity of Fixed Deposit among investors is that this investment tool offers safety and security of the invested amount. The following article is a complete guide that will help you in understanding whether fixed deposits are a good investment option or not.

There are numerous reasons for the popularity of fixed deposits. Following are a few of the best reasons given by investors for preferring fixed deposits as an investment tool.

  • Interest rates of fixed deposits are higher as compared to the interest received on other bank account types i.e. savings account and current account .
  • Fixed deposit promises to offer a fixed and regular flow of income by way of receiving a monthly income.
  • As fixed deposits are not linked to the market so the interest received or the principal invested in fixed deposit is risk-free.
  • The tenure of investment is flexible i.e. investors can opt to invest in fixed deposit anywhere between 7 days to 10 years as per their investment goals .
  • Fixed deposit offers high liquidity to the investor i.e. in case of an emergency, the investor can either liquidate or avail loan or overdraft facility on the fixed deposit depending upon their financial emergency
  • Investor can liquidate their fixed deposit completely or partially (as per the terms and conditions of the FD scheme) and satisfy their financial need
  • Some fixed deposit receipts offer tax-saving facility as per Section 80C of the Income Tax Act, 1961.

Thus, above is a brief summary about the benefits of investing in fixed deposits.

5 Reasons that Fixed Deposits Are the Best Form of Investment

Let us discuss in depth the reasons that suggest that investing in fixed deposits is the best form of investment.

Secure and risk-free

Investing in fixed deposits is considered a secure and risk-free investment because the instrument is not affected by the volatility of the stock market. Fixed deposit promises to offer fixed returns at the time of the maturity i.e. as per the pre-determined interest rates. As the interest rates are pre-determined, investors have complete knowledge of exact interest amount receivable at the time of maturity. Thus, one of the most important factors that make a fixed deposit a good investment is that it promises security and offers complete clarity about assured returns at the start of the investment.

High Liquidity

Investment in fixed deposit is considered a good investment because this instrument offers high liquidity i.e. in case of financial emergency an investor can easily withdraw the invested money. Also, in case of financial emergency, investors can dissolve the fixed deposit completely before the date of maturity and satisfy their need for funds. Kindly note, that the bank might levy a certain charge for the dissolving of fixed deposit, but still, it is advantageous as it extends financial support in financial crises. Alternatively, investors can also satisfy their need of funds by availing loan of up to 90% of the fixed deposit investment. Bank also extends the overdraft facility to its customers. So, investors of fixed deposit instrument need not worry about the financial emergency as your fixed deposit instrument shall take care of it.

Flexible interest payouts

Investors of fixed deposits have a choice to choose the frequency of interest payouts. Interest payment of fixed deposit instrument is done as per the choice of the investor i.e. monthly, quarterly, half-yearly, yearly or at the time of maturity. The investor at the time of investing has to decide the frequency of interest payout. Fixed deposit grants its investors the advantage of choosing the time of receiving interest payouts. Investors can plan the frequency by aligning it with their financial goals. Investors who are looking for higher returns can opt for cumulative interest rates where the principal amount and interest shall be received at the time of maturity of the fixed deposit receipt.

Flexible tenure

Fixed deposits offer the flexibility of tenure i.e. the investor can freely invest in fixed deposit instrument for a tenure that is as few as 7 days. Fixed deposit instrument offers the flexibility of choosing the tenure, ranging between 7 days to 10 years. Investors can choose the tenure of their investment as per their financial goals and aspirations.

Saving Habit

Investing in fixed deposit is considered a good investment option as it helps in inculcating saving habit as the invested amount is locked for a certain period of time. Moreover, investors can manage their expenses as per the frequency of the interest payouts i.e. for example if the investor has to pay life insurance premium annually then he can plan to receive the interest payout before the premium payment date thereby the expenses are taken care of. Thus, effective financial planning will promote savings habit as the investor shall not be tempted to dissolve their fixed deposit investment to meet the expenses. Thus, above are the top 5 reasons that prove fixed deposits are the best form of investment.

Best Fixed Deposit Interest Rates in 2019 for Indian Citizens

There are various players in the market that offer competitive fixed deposit interest rates for the financial year 2019 for all Indian citizens. The Bank FD rates are dynamic and keep changing and hence you need to check which bank offers the best fixed deposit interest rates in 2019 for Indian Citizens before investing. In fact, there are different rates for NRI (Non-Resident Indians) and resident Indians, and the rates may also vary with the quantum of investment. Usually fixed deposit for senior citizens are higher than others. However, there is no definite best rate of FD as it keeps fluctuating at all points of time. It usually ranges from 6-8% per annum.

Things you must know before investing in fixed deposits

Lastly, here are certain important points that you must know before investing in fixed deposits

  • It is very important for every investor to understand the terms and conditions related to investing in fixed deposit like lock-in period, charges for premature withdrawal, tax implications etc.
  • Diversifying investments is the best option so every investor must try and invest in a fixed deposit of various banks, thereby mitigating the risk completely.
  • One of the most important investment tips is to split the investment amount into many fixed deposits of different denominations. This way, in case of financial emergency, the investor can dissolve a fixed deposit of the required amount rather than dissolving the entire fixed deposit receipt. Similarly, if a fixed deposit of small amount is dissolved then the investor will not have to bear heavy premature withdrawal charges.
  • Another benefit of splitting the investment amount into many fixed deposits is that an investor can invest the money for different tenures, thereby balancing out the need of funds because the fixed deposits will mature at different times.

Thus, investing in fixed deposits is a good idea as it promises the safety of the invested principal, offers regular income by way of interest payouts and an ideal investment instrument for diversifying an investment portfolio.

Recommended Read: How Does A Fixed Deposit Work?

Joan Mathews
Written by Joan Mathews
Joan has over 4 years of experience writing for the BFSI industry. She enjoys watching mystery TV series, listening to 80s classics and spending time with her furbabies.