Why should you open a Fixed Deposit Account?
Posted on Tuesday, March 20th, 2018 | By IndusInd Bank
Fixed deposit is a savings tool favored by both new and seasoned investors. Opening a fixed deposit is considered as the first step into the world of investment. This financial instrument is issued by financial institutes, banks, and NBFCs for a fixed tenure at a fixed interest rate. This interest rate for fixed deposits is higher than the interest rate provided by savings account.
There are two types of fixed or term deposits:
1. Traditional Fixed Deposit: The amount is invested for a fixed duration and the interest is paid monthly, quarterly, or annually as decided by you. This is also known as non-cumulative fixed deposit.
2. Cumulative Fixed Deposit: The only difference in this type of deposit is that the interest is compounded quarterly and is reinvested with the principal amount.
Here are seven reasons why you should invest in a fixed deposit:
1. Security of funds: Fixed deposits are regulated by the Reserve Bank of India; hence, it is largely known as a safe investment, especially for beginners. Since this investment has no relation with the stock market, it is a low-risk investment, therefore, considered as ideal for beginners. Also, in case of bankruptcy all the fixed deposit accounts are insured up to Rs. 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
2. Ease of operation: You do not have to give various income documents to open a fixed deposit account. All you require is KYC (Know Your Customer) documents and you can visit any bank or NBFC to start a fixed deposit. Also, you do not have to closely monitor the stock market to maximize your return of fixed deposit. Depending on your fixed deposit duration, your interest rate will be mentioned on your fixed deposit receipt.
3. Income source: Extra money does not harm anyone. You can withdraw the fixed deposit interest amount every month or quarter for your household expenses. This feature is especially useful for retired individuals.
4. Tax benefits: If your income comes under the tax slab, you can get exemption under Section 80C of the Income Tax Act by investing in tax saver fixed deposit. The tax saver fixed deposit has a lock in period of 5 years and you can get exemption on amount up to Rs. 1.5 lakh. If the interest on your fixed deposit exceeds Rs. 10,000 per annum, then you are liable to pay 10% tax on the interest amount. Those who have no other income source than this interest amount can submit form 15G/H and can get tax exemption.
5. Loan against fixed deposit: Fixed deposit not only earns you better interest rate than savings account but also comes handy in case of emergency. Instead of closing the fixed deposit and paying the penalty for premature withdrawal, you can opt for loan against your fixed deposit. Most of the banks give loan up to 90% of the fixed deposit amount at rate of interest 2% higher than that of the fixed deposit. You can even take overdraft facility against your fixed deposit.
6. Habit of saving: Fixed deposit is a great way to inculcate the habit of saving. You can start a fixed deposit with a minimum amount of Rs. 10,000 for a period ranging from 7 days to 10 years.
Thus, fixed deposit is a simple way to earn a highreturn on your investment over a period of time. Visit your nearest bank branch with your valid KYC documents to open your fixed deposit account.