Top-4 Reasons Why Investing in FD is a Good Idea

December 22, 2020 Lokesh kumar 0 Comments

 


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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