5 Reasons that Make Fixed Deposits a Good Investment Plan

Fixed deposits are one of the popular investment choices for Indians. In fact, 57.7% of all deposits in India were fixed deposits in 2017-18, according to data provided by the RBI. If you are still wondering whether to invest in a fixed deposit or not, here are some benefits that you should know about.

  • Guaranteed Returns

Fixed deposits are one of the safest investment choices. Since they are not affected by market fluctuations, you get to benefit from guaranteed returns. The rate of interest you get from an FD remains constant throughout the tenure. Since the interest rate is generally higher than the rate of inflation, FDs are great for investment as well. The interest rates are higher for senior citizens, making them even more attractive for them. One can also easily calculate their returns using afixed deposit calculator.

  • Flexibility

You can choose from a wide range of tenures when investing in FDs. The tenure can vary from just seven days to up to 10 years. It is a good idea to invest in FDs of different tenures, instead of putting all your money in a single FD. For example, you can divide your money into three FDs with tenures of 1, 3, and 5 years. Once the shortest one matures, you can renew it for five years and so on. This ensures that you regularly receive interest payments. 

You also get flexibility on the interest rate payout. You can opt for monthly, quarterly, or yearly payments. 

  • Tax Saving Benefits

You will not attract any TDS if your earnings from fixed deposits if it does not cross ₹40,000 in a single financial year. In the case of senior citizens, the limit is ₹50,000. To take advantage of this tax benefit, senior citizens are required to submit Form 15H, while others need to submit Form 15G. There are also tax-saver FDs to choose from. These allow you to claim tax deductions under Section 80C of the Income Tax Act of up to ₹1.5 lakhs on your taxable income. 

  • Power of Compounding

With fixed deposits, you also get the option of reinvesting. This option indicates that instead of taking out your interest payments, you can reinvest them into the FD. This benefit means that you would not only be earning interest on your principal amount, but also the interest earned on this amount. In case you need to know about your maturity amount, you can use an FD calculator.

  • Easy Withdrawal

The amount deposited in a fixed deposit can be withdrawn easilyby paying a small penalty. This is hugely beneficial in case you have an urgent need for funds. The penalty depends on the bank and can vary from 0.55% to 1% of the FD amount. You generally do not have to pay any penalty in case the tenure of your fixed deposit is one to two weeks. There are also some banks that do not impose any penalty on premature withdrawal.

Apart from these benefits, fixed deposits also encourage the habit of saving. In case you are curious about returns on FDs, use a fixed deposit calculator to make an informed decision.

Amanda Peterson: Amanda is an economist turned blogger who provides readers with an in-depth look at macroeconomic trends and their impact on businesses.