Every investor dwells in the thoughts of securing or saving their money in the most beneficial investments and with the advancement in finances all over the globe, people are looking for smart ways to save their funds and earn some extra money on it. In such cases, the most popular option is a fixed deposit. It allows you to make a one-time investment and earn interest without having to worry about any turmoil in the market.
Investing in fixed deposits has many benefits and advantages over many other saving options. Listed below are some of the profound benefits of investing in fixed deposits that make it the smart choice.
What are the benefits of investing in fixed deposits?
Rate of interest
Fixed deposits offer higher interest rates when compared to other saving instruments. Generally, saving accounts provide 3% to 4% of interest over the amount, whereas in fixed deposit, it goes up to 7 to 8%. It depends on the bank, which is considered first while choosing the bank for your savings.
The interest rate on fixed deposits is decided while making the investment and remains the same for the selected tenure. It avoids the uncertainty of changes in the rate of interest, unlike in some other investment options.
What’s more, a fixed deposit can be both cumulative and non-cumulative. Cumulative FDs earn interest on both principal and interest and thus, helping in quick wealth generation.
It is one of the most secure options for saving. Coming out to an odd phrase, ” precaution is better than cure”, follows up to our smart way of saving in fixed deposit. This is because the fixed deposit interest rate is decided beforehand and stays the same for the whole tenure of your fixed deposit.
Hence, the interest rate does not get influenced by market ups and downs and you continue to earn interest at the same rate. Moreover, as per RBI’s guidelines, FD investments up to Rs. 1 lakh are insured with a deposit insurance scheme.
As fixed deposits are not subject to market risks, the depositors earn guaranteed returns, unlike other investments that depend on market fluctuation.
Due to this privileged advantage, your money never sinks, neither the returns decrease. Thus, it is one of the smartest ways to secure your money, among other investment options.
The banks offer different period options for different needs of customers ranging from 7 days to 10 years. You have an option to withdraw your money before maturation in case you need it for any emergency or mishappening. This ensures you easy access to your finances.
See more: Fixed deposits Instead of Debt Funds
Note that you need to pay a penalty to withdraw the money. If you have both short-term and long-term investment goals, you can invest your money in two or more separate FDs with both short and long tenure, instead of one.
Auto-renewal and nomination facility
FD gives you the facility of auto-renewal where your principal amount with the interest you earned is re-invested if for a tenure of your preference. The expiration date is pre-defined on the receipt giving you the account and transparency of your finances.
Another feature you should know about FD is you have to select a nominee, who will be financed in your absence, in case you are not able to withdraw the money. Another useful thing about FD is you can calculate the whole amount you will get at maturity using an FD calculator.
This feature makes FD investment a smart choice. You will have to link your fixed deposit to your savings account and set a maximum balance limit for your savings account.
When the balance in your savings account surpasses the pre-set limit, the surplus amount will be deposited to your FD automatically. It will allow you to earn higher interest on your money as FDs offer higher interest rates than savings accounts.
Along with being so useful and handy, it also helps you in availing loans in case of emergencies. Banks offer loans up to 90% of the FD amount. The wide range of features and benefits definitely make a smart investment option.