Top 7 Reasons Why Fixed Deposits Are the Best Investment Choice (2024)

FAQs

Why Fixed Deposit is the best investment? ›

Salary Account. Fixed deposits are one of the oldest and safest investment instruments provided by the banks. The interest rates on fixed deposits are higher than the interest provided on savings account or current account balances.

FDs are an excellent way to build up your savings while earning some interest on your money. The rates are very low right now, but they're still much better than nothing. You should consider investing in Fixed Deposits if you're looking for a secure place for your money until you need it later down the road.

In fixed deposit, banks provide you with fixed interest as per your earning. Isliye agar aap fixed deposit mein invest karte hai then aapko ek fixed earning milti hai in the form of interest. This interest does not change till the time of your withdrawal.

Higher rate of return:The interest rate offered on fixed deposits are higher than that on savings account. It is also a safe form of investment where returns are guaranteed. Flexible interest rate pay-outs:Interest can be paid at different intervals depending on the term you choose.

A fixed interest rate avoids the risk that a mortgage or loan payment can significantly increase over time. Fixed interest rates can be higher than variable rates. Borrowers are more likely to opt for fixed-rate loans during periods of low interest rates.

The prime difference between FD vs Equity is (in oversimplified terms) is that a fixed deposit offers modest returns with little to no risk. Equity investments, on the other hand, offer virtually unlimited returns, but this prospect also comes with a major downside or a very high risk.

Bank Fixed Deposit (FD)

Bank FDs are considered as one of the safest investment options in India as there are hardly any instances of a bank defaulting on FD. Bank FDs offer a much higher rate of interest than a regular savings bank account.

What are 2 advantages of bank deposits? ›

Your money will be protected from theft and fires. Plus, your money will be federally insured so if your bank or credit union closes, you will get your money back. The maximum amount of money that can be insured is $100,000. Many banks offer an interest rate when you put your money in a savings account.

So, what exactly is a Fixed Deposit? In a Fixed Deposit, you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest. FDs are also called term deposits.

You can park your surplus funds in both Fixed Deposits and Savings Accounts as both of them are excellent instruments as both of them offer stability and safety. However, if you want to grow your funds, along with growth and flexibility then you can park your savings in Fixed Deposits.

Your monthly payments are more likely to be stable with a fixed-rate loan, so you might prefer this option if you value certainty about your loan costs over the long term. With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same.

The benefit of owning a fixed rate bond is that investors know with certainty how much interest they will earn and for how long. As long as the bond issuer does not default or call in the bonds, the bondholder can predict exactly what his return on investment will be.

A fixed rate is generally higher to accommodate potential increases due to future market conditions. A variable rate can start off lower because it reflects market conditions.

The different categories of banks in India include cooperative, public, private, and foreign banks. All of these banks are covered by deposit insurance. Hence, no matter which bank you choose to open your FD account with, the money is equally safe.

Do not compromise on quality for the sake of slightly higher returns. Financial year 2022-2023 will end soon. Rising interest rates in the Indian economy made fixed deposits (FD) attractive in the past year but as experts see the rate hike cycle coming to an end, this can be a good time to invest in fixed deposits.

The biggest risk associated with the fixed deposits is interest rates risk. The risk of your money being locked up for longer tenure at a low rate of return. To overcome this factor the best thing is to split your money into different amount and invest it for different tenure as well.

Pay less interest

The more money you put in as a deposit, the less you need to borrow from the bank. With a smaller loan amount, you'll pay interest on a lower balance, which means your total interest cost will be less, too.

What is the advantage of deposit money? ›

Money and Credit

(i) People can earn interest on the deposited money. (ii) People have the provisions to withdraw the money as and when they require. (iii) People can also make payments through cheques.

The purpose of deposit then is to keep money safe for future needs. Some may want to deposit money in a bank for as long as possible to earn interest or to accumulate savings with interest so as to buy a flat, or to meet hospital expenses in old age, etc.

Customers who open a fixed deposit account can deposit a certain amount of money for a specific period of time, known as the term of the deposit. In return for keeping their money in the account for the agreed-upon term, customers earn a higher interest rate than they would with a regular savings account.

Fixed deposits invested into banks for a short period of time that is less than one year are current assets. Fixed deposits invested into banks for more than one year are non-current resources. Hence fixed deposits are assets.

Disadvantages of the Fixed Deposits. All interest gained on the fixed deposits are fully taxed upon. The income is denoted under the head “Income From The Other Sources" when you file your ITR to Income Tax Returns. There are other financial instruments available, which provide you the benefit of tax-free savings.

No tax benefit:

The interest earned on fixed deposit is added to the taxable income of the deposit holder. There is no deduction on any interest earned. However, senior citizens get a deduction up to Rs. 50,000 on interest.

You can park your surplus funds in both Fixed Deposits and Savings Accounts as both of them are excellent instruments as both of them offer stability and safety. However, if you want to grow your funds, along with growth and flexibility then you can park your savings in Fixed Deposits.

Fixed deposits have always been a popular choice as it provides the benefit of assured returns and has low-risks. There are broadly two types of fixed deposits, one being the most known which is offered by the banks which have lower risks.

The returns in an FD are guaranteed but the FD rates are low as compared to other market-linked investments. If you withdraw the FD before its maturity date, you will have to pay a penalty charge. You could also get a low interest on your FD if you break it before the date of maturity.

Investors should not put money into FDs for long terms. The reason behind this is that interest rates could go up due to rising inflation at least in the next one year or so and in such a case, the risk of losing out is high.

Is fixed interest safe? ›

Fixed interest investments offer stable returns, steady income and capital security, while also providing portfolio diversification, downside protection and lower volatility.

In a Fixed Deposit, you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest. FDs are also called term deposits.

For non- cumulative FDs, you can invest up to Rs 5 lakh in the bank as you get the interest at regular intervals. However, for cumulative fixed deposits, you need to be careful that the total of the principal amount and accrued interest does not exceed the threshold of Rs 5 lakh, the amount insured by the DICGC.

Public Provident Fund (PPF)

PPF is considered as one of the safest investments as sovereign guarantees back the scheme.

Fixed deposit accounts are an excellent investment vehicle for those investors who don't want to bear any risk. If you wish to sustain the money over the years and are not looking for growing wealth or if you are looking for steady returns, you can go for FD accounts.

A fixed deposit or an FD is an investment instrument that banks and non-banking financial companies (NBFC) offer their customers. Through an FD, people invest a certain sum of money for a fixed period at a predetermined rate of interest in an FD.