Why Fixed Deposit is a Smart Way of Investment

While there are now several investment options in India to suit every type of investor and financial objective, FD continues to be one of the most popular. Read this post to know the top reasons why FDs are considered an intelligent investment plan.

A Savings Account is a preferred option among people wanting to deposit their savings and earn interest on the same. You are allowed to withdraw and deposit the funds anytime you like, making it an excellent choice for managing everyday expenses. While a Savings Account offers several benefits, it is not really seen as an investment option. A smarter alternative to earn guaranteed returns on your savings is Fixed Deposits (FDs). With an FD account, you can deposit any amount of your choice for a fixed tenure at a fixed interest rate. At the end of the tenure, you will receive the promised interest along with your principal amount. While there are several investment options in India, FDs continues to be one of the most popular options among seasoned as well as new investors. What are the reasons that make FDs a smart investment plan? Here is a list of top five:

1. Guaranteed Returns

Needless to say, the biggest reason for investing in FD is guaranteed returns. With an FD investment, you are not required to worry about any type of market fluctuations as you are sure to earn the interest promised by the bank if you stay invested for the pre-fixed duration. In a way, this smart investment adds stability and transparency to your investment portfolio. This is the reason why financial experts recommend people to invest at least some portion of their portfolio in FD.

2. Power of Compounding

While investing in FD, you get to select the frequency at which you’d like to receive the interest. You can receive the interest monthly, quarterly, half-yearly, annually, or at the end of the tenure at once. Apart from these options, you also get the option to re-invest the earned interest. In other words, you get to benefit from the power of compounding as you will earn interest not just on the principal amount, but also on the interest you have earned.

3. Flexible Tenures

Irrespective of what type of investment you select, it is vital to link it to a financial objective and the time frame within which you'd like to achieve that objective. One of the biggest benefits of FDs is its flexible investment tenure. You can select any duration between 7 days and 10 years. This makes FD investment an excellent option for any type of short-term or long-term financial objective.

4. Premature Withdrawal

While it is recommended that you should remain invested in FD throughout the tenure you have selected, you do get the option to make a premature withdrawal. However, you will have to pay an early withdrawal penalty for the same. But even with the penalty, premature withdrawal facility makes FD a highly liquid investment option. Moreover, some of the banks also allow partial withdrawal. If you do make a partial withdrawal, the balance amount will continue earning the applicable interest.

5. Loan Facility

There can be several instances in life where you might need financial help. Taking a loan is the go-to option in such instances. One of the advantages of Fixed Deposit is that you can borrow 90% of your principal amount and accrued interest as a loan against your FD.

However, this facility is only offered by a few banks. Prefer selecting a bank that provides this loan against FD facility as it can prove very beneficial in the future.

Fixed Deposits for Achieving Financial Goals

The guaranteed returns of FDs make them a smart investment option for any of your financial objectives. Look for a reputed bank offering the highest interest on FD investments to experience all the different benefits listed above.

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