The Surprising Benefits of Fixed Deposits You Need to Know

Saving money for the future is important, and choosing the right investment option can make a huge difference in securing your financial future. When it comes to investment options, fixed deposits continue to be a popular choice among investors. FDs offer a low-risk investment option with guaranteed returns, making them a reliable and safe choice for those who prefer conservative investments.

With fixed deposits, you have the flexibility to choose the tenure of your investment and the interest payout frequency. Plus, FD interest rates are typically higher than savings account interest rates, which means you can earn more money on your investment.

To make the most of your fixed deposit investment, you can also try using Freo’s FD calculator. It’s a simple and easy-to-use tool that will help you estimate your returns and plan your finances better. Try it out today and take the first step towards achieving your financial goals!

What are the Benefits of Fixed Deposit?

Fixed Deposits offer a range of benefits that are worth considering if you’re uncertain about investing in them. Knowing about these benefits can help you make an informed decision about your investment choices. To give you a glimpse, here are some of the top advantages of fixed deposits that you should be aware of:

  1. Stable Returns

    One of the most significant advantages of investing in fixed deposits is that they offer a stable and predictable source of income. Unlike other investments that are subject to market fluctuations and unpredictable returns, fixed deposits are immune to market volatility. This means that regardless of any changes in the market, your returns on FDs will remain the same.

    Another key benefit of investing in fixed deposits is the predictability of interest rates. Since the interest rate is fixed at the time of investment, investors can easily calculate their expected returns and plan their finances accordingly. This makes FDs a popular choice for risk-averse investors who seek stability and certainty in their investment portfolios.

    Find out How To Calculate FD Interest?

  2. Liquidity Facility

    Fixed Deposits offer the added advantage of liquidity, allowing investors to access their funds in times of need. Withdrawing money from your FD account is quick and hassle-free, which makes it a convenient option for emergencies. However, it’s important to note that withdrawing money from your FD account before the maturity date will result in premature withdrawal penalties.

    The penalty rate may vary depending on the bank or NBFC and the tenure of the FD. Therefore, it’s always a good idea to familiarize yourself with the penalty charges applicable to your investment before making any withdrawals.

  3. Senior Citizen Benefits

    Fixed Deposits can be particularly advantageous for senior citizens, offering a range of benefits that are tailored to their unique needs. One of the most significant advantages of investing in FDs as a senior citizen is the higher interest rates on offer. Most banks offer an additional interest rate of 0.25% to 0.50% on FDs held by individuals who are 60 years of age or above, providing an attractive return on investment.

    Additionally, senior citizens can also benefit from a higher limit for TDS deductions. Banks are required to deduct TDS on FD interest for senior citizens only if the interest earned during the year exceeds ₹50,000, which is a higher threshold compared to ₹40,000 for non-senior citizens. This can help senior citizens manage their tax liabilities more efficiently, ensuring that they can maximize their returns while also meeting their tax obligations.

  4. Tax Saving Benefits

    For those looking for tax-efficient investment options, tax-saver fixed deposits can be an attractive choice. These fixed deposits come with a lock-in period of 5 years, which means that you cannot withdraw your funds before the end of this period. However, this restriction is offset by the fact that you can invest up to ₹ 1.5 lakh in a financial year and receive tax deductions on the same.

    These deductions can be claimed on a maximum deposit of ₹ 1.5 lakh in a year under Section 80C of the Income Tax Act, reducing your gross annual income and lowering your tax liability. By investing in tax-saver fixed deposits, investors can optimize their tax planning, ensuring that they pay the least amount of tax possible.

    Learn More about – Income Tax on Fixed Deposit Interest.

  5. Loan Against FD

    In addition to being a safe and stable investment option, fixed deposits also offer the added benefit of providing access to emergency funds through a loan against the amount in your FD account. The loan amount that can be availed is typically a percentage of your FD account balance, ranging from around 60% to 90% of the deposit amount.

    This feature of FDs can come in handy when you require funds at short notice and don’t want to liquidate your savings. By availing a loan against your fixed deposit account, you can meet your financial requirements without affecting the interest earned on your deposit.

  6. Backing of Deposit Insurance

    The Reserve Bank of India (RBI) has established the Deposit Insurance and Credit Guarantee Corporation (DICGC) as its subsidiary company to provide backing for fixed deposits held in banks. Investors can feel assured by the coverage provided by the DICGC, which offers up to ₹5 Lakhs of protection for each fixed deposit account.

    This means that in the event of a bank defaulting on payment of dues due to bankruptcy or any other reason, investors can rest assured that their funds are secure up to the aforementioned sum. By choosing fixed deposits as a savings option, investors can enjoy not just the benefits of earning stable returns, but also the peace of mind that comes with knowing their investment is safe and secure.

  7. Flexible in Nature

    One of the key benefits of fixed deposits is their flexibility in terms of investment tenure and amount. You can choose a tenure that suits your financial goals, whether it’s a short-term goal like a vacation or a long-term goal like retirement planning. Fixed deposits can be taken for a period as short as 1 month or as long as 10 years, depending on your needs.

Additionally, you can invest any amount that you can afford, making it an accessible investment option for all. If you have multiple financial goals, you can open different fixed deposit accounts to save for each of them separately. This way, you can have a clear picture of your savings and investments and manage them accordingly.

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What is the maximum loan amount that can be obtained through an FD?
By opening a fixed deposit account, you have the option to obtain a loan amount ranging from 60% to 90% of the deposited amount.
Are senior citizens eligible for any special benefits in regard to fixed deposits?

Senior citizens are often eligible for preferential interest rates on their fixed deposit accounts, with the rates typically being 0.5% to 0.75% higher than the standard rates offered to non-senior customers.

What is the DICGC compensation cover?

The DICGC provides insurance coverage to protect depositors from potential risks to their corpus. The compensation cover for each fixed deposit account is limited to ₹5 Lakhs or the amount in the account, whichever is lower.