When people living in India get some extra cash in their wallet,
they invest it somewhere.
However, not all investments offer the same security and high
returns as an FD account. But,
not all FD accounts are created
alike. While some come with the highest
FD rates, others offer rates much lower than the inflation figure.
So, is an FD account a viable option to
save for the future? Read on to know the reasons why fixed deposits are still
an attractive investment option.
The Top-4 Reasons Which Make Fixed Deposit an Attractive
Investment Option
Get a Lumpsum Amount
Every Month
When you create an FD
account, the financial institution offers you two options - cumulative
and non-cumulative. In the cumulative mode, you have to stay invested until the
end of the tenure. If, however, you select the non-cumulative mode, you are
given four interest withdrawal options - monthly, quarterly, half-yearly, and
annually. However, it is true that the cumulative mode gives the highest FD rates; choosing the
non-cumulative mode enables you to earn a decent amount every month, which you
can reinvest to get higher returns.
Hence, an FD account
can give you assured income every month which you can choose to spend or reinvest.
Save Taxes of Up To
INR 5,000 Every Year
When people invest in the stock market or equity-linked mutual
funds, they have to pay a short-term or long-term capital gains tax. On the
contrary, the interest you earn from an FD
accountis tax-free up to INR 5,000.
Although you can save more when you open an FD account with a licensed
commercial bank, the low interest rates may offset the tax benefits.
For example, the highest
FD rates offered by PNB Housing Finance is 6.95%, and the highest FD
rate offered by any public sector bank in India is less than 5.50%. When the
amount you invest is immense, the lower rates of interest can offset the higher
tax benefits.
Choose Any Tenure
Between One Year and Ten Years
You may open an FD
accountfor any duration between one year and ten years. Such flexibility
can motivate you to open as manyFD
accountsas you can. However, while investing in FD schemes, ensure that
you choose different tenure, as this can provide you with ample liquidity to
tide over short-term financial requirements.
A superior approach is to follow the ladder technique, where you
invest a part of your monthly income in opening anFD account every month and choose different maturity terms.
Take a Loan When You
Need Urgent Cash
One of the best features of FD is that you can avail a loan
against your FD account.
Generally, financial institutions approve a loan of up to 75% of the invested
FD amount. The interest rates are around 2% higher than the highest FD interest rates. When you compare a loan
against FD with other instant credit types, such as personal loans or credit
cards, you will see that you can save a lot on interest by opting for a loan
against FD.
Conclusion
If you need assured returns at low-risk, nothing can probably be
better than an FD account.
However, make sure you choose an appropriate tenure by considering your
financial goals before investing.
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