6 Reasons Why You Should Invest In Fixed DepositsEstimated reading time: 5 minutes, 8 seconds

6 Reasons Why You Should Invest In Fixed Deposits

Posted on Tuesday, March 20th, 2018 | By IndusInd Bank

It is always advisable to take some risks with your investments to maximize returns and help your money grow at a quick rate. However, these investments must be balanced with sound, risk-free schemes which will give you security and financial stability in the future. Such schemes are those that will help you set aside part of your savings so that you can be sure of returns after a period of time. The most prominent scheme in this category is a fixed (term) deposit.
A fixed deposit is an investment account which is opened for a stipulated period of time by depositing a certain amount of money. The money with which this account is to be created is a fixed, one-time deposit which then attracts a fixed rate of interest depending on the amount of money and the tenure for which the account has been created.
With assured returns, a fixed deposit is considered as one of the safest investment options in the market. You can also choose to collect your income, from the interest accrued on the deposit, according to your convenience on a monthly, quarterly or annual basis.
In today’s dynamic world of credit purchases and high-risk investments, having a contingency plan when unexpected expenses creep up on you is always a good idea. A fixed deposit account is an ideal way for you to guarantee a constant mode of income by managing your expenses and using those savings wisely. Following are certain benefits you could enjoy by investing in fixed deposits –
1. Get Assured Returns
The popularity of fixed deposits as an investment tool is because it is an instrument which assures the safety of your principal deposit and does not depend on market forces when it comes to generating a return on the deposit. Being governed by the Reserve Bank of India’s rules and regulations, fixed deposits are risk-free investments where your money remains safe and continuously attracts the same amount of interest until its maturity, irrespective of the prevalent economic conditions.
2. Grow Your Savings
Fixed deposits are a great tool to encourage you to save money, and to help you grow your savings. Ideally, to gain maximum benefits from FD, you should not prematurely withdraw your deposit, or break the fixed deposit. This helps you inculcate a habit of saving money. You may also deposit a small amount of money, which then enables you to avoid superfluous expenditures. This is a great incentive to set aside money and plan your finances more responsibly.
A fixed deposit also offers a substantially higher rate of interest on your investment as compared to depositing money in a savings account. Since you may use a savings account for transactions, the balance amount in that account is likely to fluctuate and attract even lesser returns. This does not happen in case of a fixed deposit, as a result of which your money has the potential to earn a lot more from it.
3. Flexibility
Fixed deposits afford a great deal of flexibility in terms of tenure as well as collection of income.
As far as tenure is concerned, you could choose any term, from as little as 7 days to a maximum of 10 years, for the maturity of your scheme according to the manner in which you have planned your finances. This is one of the most reassuring features of this scheme as you may benefit from your investment while ensuring liquidity at the same time.
When your investment attracts interest, you also have the choice of when to collect it as per your requirement. You may choose a scheme whereby the income earned from the interest could be collected on a monthly, quarterly or annual basis, if at all. You may also choose not to collect it and reinvest the interest to benefit from the effect of compounding and help your money grow faster.
4. Raise Loans and Improve Credit Scores
You may apply for loans against your fixed deposit as it is considered to be a form of assurance with the bank. You may avail up to 90% of your fixed deposit amount as a loan.
You may also enjoy credit card and overdraft services of up to a certain percentage of your fixed deposit amount from the bank, without providing your credit score or any form of security. This enables you to start building a good credit score on the basis of which you could apply for loans in the future.
This is an ideal scenario as you continue to earn interest on the fixed deposit while also being able to provide security to avail a credit card against that amount. Additionally, you get to use this as a go-to option or a security net in case of unforeseeable circumstances or any losses suffered professionally or personally.
5. Claim Tax Benefits
If you choose to open a tax saving fixed deposit account, you could save money by enjoying a tax deduction on your investment. You could open such an account with a deposit ranging from INR 100 to INR 1.5 lakhs. Though the interest on your deposit is subject to taxation according to your tax slab, the entire principal amount is likely to be exempt in such fixed deposits. Under Section 80C of the Income Tax Act, you are entitled to claim tax benefits of up to INR 1.5 lakhs per year by making investments in fixed deposit accounts.
However, a tax saving fixed deposit requires a lock-in period of at least 5 years and does not allow you to avail loans or credit against this account. So, you must be prepared to put away the principal amount for that period without feeling the need to withdraw it before its maturity in order to benefit from it.
6. Meet Future Financial Goals
You could create as many fixed deposits as you like, and use them to fund major life events. You could achieve all your financial goals and meet financial obligations by ensuring that your fixed deposits mature around the time when you would need the money. You could open accounts in your own name, across various banks or jointly with your spouse or other family members in order to cater to all your financial requirements.