The origin of fixed deposit (FD) can be traced back in the last decade of the 18th century when the banking facilities were first introduced in India. A fixed deposit is one such avenue that offers guaranteed and definite amounts of return. In essence, no wonder the risk-averse strata find satisfaction in investing their surplus funds in such fixed deposit schemes.
Even if you are a self-employed or salaried individual, you can ensure your corpus remains protected by investing in a fixed deposit. It certainly can be an excellent area to begin corpus accumulation.
Let us understand how the FD rates in 2020 help in getting secure returns over other forms of investments-
One can have a peaceful sleep knowing that their money will grow to a definite amount in the future. FD interest rates are such that they offer a guaranteed return above a savings bank account. FD rates in 2020 lie in the range of 7% to 8%. One point to remember is that ensure you do not make premature withdrawals as it may have a significant impact on the returns that you shall receive.
Loans Against Investment
A sudden unfortunate event can strike a person, and there can be an urgent need for funds. In such times of emergency, you can obtain a loan against your investment in fixed deposit. Financial institutions lend up to 90% of the value of the FD. Some banks even offer a higher amount of loans by charging a higher rate of interest.
Tax Saving Alternative
To take care of your tax planning, you can invest in fixed deposit too. A fixed deposit offers a deduction under section 80C of the Income Tax Act, 1961. Please note, there is a five-year lock-in from the date of investment under the tax saver fixed deposit scheme.
There is a high degree of flexibility offered when investing in a fixed deposit. The duration for an FD starts from seven days to a maximum period of ten years. One can invest in FD of any bank irrespective of whether you have an account with them or not. Select the right tenure according to your financial goals.
Investing in a fixed deposit has very little volatility, unlike stocks, mutual funds, or other debt funds. Also, there is a guaranteed amount that is available on the maturity of your investment that makes it easy to classify as a risk-free investment.
Power of Compounding
There is very little awareness regarding the power of compounding in young investors. They seek quicker and faster alternatives that help in reaching financial goals. As rightly said by Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it”. Under compounding, interest earned on your FD earns interest on itself to generate more returns than other investments. So longer the period for which you stay invested, more significant is the corpus you have at the time of maturity.
One can invest in FDs, which are not only offered by banks but also non-banking financial companies or as popularly known as NBFC’s. The notable difference that prevails in a fixed deposit with a bank and NBFC is the rate of interest. Fixed deposit interest rates with a NBFC is more than a banking institution. Ensure you invest in FDs, which have a higher safety rating. Invest safely for a safer future!