A fixed deposit is a type of deposit in which the capital invested stays locked in till maturity. In return, a fixed rate of interest is paid out to the depositor. This interest can be paid monthly, quarterly or on maturity of the fixed deposit. An FD is one of the most popular investments offered by banks and the post office. Opening an FD is extremely simple and can be done both online and offline. With advances in mobile banking, it is possible to open a fixed deposit with the help of the bank’s mobile banking app as well in a matter of a few minutes. A fixed deposit is one of the most popular investment options in India and is preferred by many people, especially senior citizens.

Here are 5 reasons why a fixed deposit is the best investment:

Easy Accessibility

A fixed deposit is easy to open and can be opened for amounts as low as Rs. 500. It is not necessary to have a savings bank account in the bank where you want to open a fixed deposit. It is possible to deposit your funds and open a fixed deposit as well. This makes it extremely convenient and easy for all types of depositors to open a fixed deposit. To open a fixed deposit, you just need to visit the bank branch and fill in a fixed deposit account opening form. You may need to submit KYC documents in case you are not a customer with the bank. Once this is done, you need to deposit funds and the fixed deposit will be opened.

Assured Rate of Return

One of the best advantages of opening an FD is the assured rate of return. The depositor knows in advance the rate of return on the fixed deposit. This helps a lot while investment planning. Banks display their fixed deposit rates for different tenures on their website and at their branches.

Extra Benefits for Senior Citizens

Senior citizens get an additional 0.5% return on investments made in a fixed deposit. This is beneficial for them since a greater return helps with planning their incomes. Some banks offer additional benefits to senior citizens who open fixed deposit accounts with them.

Tax Benefits

Under Section 80C of the Income Tax Act, any investment made in a 5 year tax saving fixed deposit gets a deduction. This deduction is up to Rs. 1,50,000. Depositors can take advantage of this and save on their taxes.

Flexible Tenure and Amount

As an investment, a fixed deposit is excellent simply because of the flexibility it gives the depositor. Any amount is allowed as a fixed deposit subject to the minimum requirements of the bank. The tenure also can be freely decided by the depositor based on the minimum tenure fixed by the bank. These two options make it possible for a depositor to open an extremely short tenure fixed deposit and earn some interest. It is also possible to opt for a sweep in facility where additional funds above a particular limit in savings account get converted into a fixed deposit. Whenever funds are needed, the fixed deposit gets liquidated and the customer earns interest for the time the fixed deposit was active.

Explain why & how fixed deposit is better than other investment?

Fixed deposit schemes are very popular in India. Almost every investor finds fixed deposits suitable for their portfolio for the guarantee that such schemes provide. In fact, when considering fixed-income schemes, investors tend to pick fixed deposits online over other available schemes. Have you ever wondered why? Let’s explore –

What are Fixed Deposits?

Fixed deposit schemes are guaranteed income schemes wherein you choose to deposit a lump sum amount of money for a specific tenure. You are promised a rate of interest on the amount deposited. When the chosen tenure comes to an end, you get a lump sum amount on maturity which includes the amount deposited and the interest earned thereon.

Why fixed deposit schemes are better than other investments?

Here are some reasons why investors choose fixed deposits online over other investment avenues –

Guaranteed Returns

One of the primary reasons why fixed deposits are preferred is the safety and guarantee of returns promised by these schemes. When you invest, the interest rate is fixed depending on the amount invested, tenure chosen and your age. This rate remains constant over your investment period even when the market rates fluctuate or the market becomes volatile. Thus, with fixed deposits, you can estimate the corpus that you would receive on maturity as the returns are guaranteed.

Safe in Volatile Markets

Fixed deposits are particularly favourable when markets are volatile. Compared to market-linked investment avenues which are risky, fixed deposits promise a safe haven for investors as the returns are independent of market volatility. Thus, investors choose to get the best fixed deposit rates through these deposits when the market is fluctuating.

Ease of Availability 

Fixed deposit schemes are offered by banks, post-offices and Non-Banking Financial Companies (NBFCs). You can, therefore, compare the different schemes of fixed deposit online and choose one which offers the best fixed deposit rates. You can invest online or offline making fixed deposits easy to avail.

Suitable For Small Investors Too

The minimum deposit required to open a fixed deposit account starts as low as Rs.100 and there is no limit on the maximum deposit which you can make. This makes fixed deposit schemes suitable for small investors too who have limited savings at their disposal.

Tax Benefits

If you choose the tax-saving fixed deposit schemes offered by banks and post-offices, you can earn tax benefits on your investments too. 5-year fixed deposit schemes are eligible for tax deduction under Section 80C of the Income Tax Act, 1961 up to Rs.1.5 lakhs. You can, therefore, invest in such deposits and claim tax deductions on your income. Moreover, for senior citizens, the interest earned from their fixed deposit schemes is also allowed as a tax-free income up to Rs.50, 000 under Section 80TTB. These tax benefits further make fixed deposits a popular investment choice.

Safety of Deposits Bank fixed deposits are secured by the RBI in the sense that if the bank winds up its operations and liquidates, deposits up to Rs.5 lakhs would be protected. You would get your deposits refunded in such cases and so fixed deposits are safe too.