Sir Warren Buffett says, “Never depend on a single income. Make investments to create a second source.”
Fixed Deposits (FD’s) are financial instruments that offer more interest as compared to savings account deposits. The difference between the two is that fixed deposits are done for a specific time period and provide more returns than deposits made in savings bank accounts.
Some of the important features of Fixed Deposits in India-
- Fixed deposits are considered to be the most popular investment options as they yield an affordable amount of interest at very low risk.
- The tenure of Fixed Deposits ranges from 7 days to 10 years. You can choose the tenure according to your convenience.
- The interest rates of FD’s start from 2.8% and go up to 5.75% depending upon the tenure of the deposit. Different banks and NBFC’s (Non-Banking Financial Institutions) offer different interest rates.
Some advantages of Fixed Deposits are-
FD’s offer fixed rate of returns for the specified period of time. This makes FD’s one amongst the foremost widespread investment sources as people of all ages get a guaranteed return on their investment which is higher than the savings account returns.
FD’s come with versatile tenures. This helps the depositor to deposit in step with their convenience.
Another name for fixed deposits is term deposits. FDs as a financial instrument can be dependable as it permits the depositor to acquire a loan worth 80-90% of the amount deposited as FD. This in a way makes things exceedingly easy for the depositor in case they need to borrow funds from the bank.
There is no rigidity when it comes to fixed deposits as the depositor can withdraw the amount they have deposited at any time at the ease of their will.
Senior citizens above 60 years of age get additional 0.50% interest on Fixed deposits according to the banking standards set by the Reserve Bank of India.
Disadvantages of FD’s
This means that the funds that you have deposited as FD’s get locked for a fixed duration of time. These funds cannot be used by you unless they are withdrawn before maturity. FDs are not very liquid which means that they cannot be converted into cash easily.
There are penalties imposed by the banks or NBFC’s incase you want to withdraw your funds/deposits earlier than their maturity periods.
The interest rates on fixed deposits remain the same even if there is an increase in the interest rates during the duration of the current fixed deposit.
For example- If you have started a FD @5% per year for 5 years and if the interest percentage increases to 5.25% per year on FD’s, even under such circumstances you will be accountable for 5% interest only till the current FD matures.
There are so many other investment options available which provide better returns than Fixed deposits. The risk factor might be a little more than that of FD’s but the returns are definitely higher. Also, investing has also become comparatively easier than what it used to be earlier.
Everything is now possible at the tip of our fingers using various mobile applications.
Fixed Deposits have their own blessings and downsides however still stay to be the easiest forms of investments for people who are not willing to take a great number of risks while investing.