- What is a fixed deposit (FD)?
- How does it work?
- Is fixed deposit an investment option?
- Growing money with fixed deposit is a viable option
Savings – A term that everyone thinks of but very few bring it into practice in real life.
It doesn’t matter if you are a salaried or a self-employed individual; savings are an integral part of your financial goals. It is normal for people to come across several roadblocks while attempting to fulfil their savings goals. But instead of letting them hamper your growth, you need to find a way to overcome them.
First thing first – you need a budget to manage your finances well. Once you have the map, you know how to move about it. The next thing that you require is to invest your money. It is far better than parking it up in a savings account and losing its real value for no mistake of yours.
Fixed deposits help you build savings. How? This article will give you all the answers.
Users can open either savings or current accounts with banks. With these two, they can withdraw their parked funds anytime.
But banks have two different verticals – lending and borrowing. It means that they would need a pool of funds to stay parked with them for a more extended period. In comes fixed deposit as investment option.
Fixed deposit, also called term deposits, is a safe & secure wealth creation tool with minimum risk. Here, the investor invests a lump sum for a fixed period. Post the tenure, he can withdraw the principal and the interest or reinvest the same.
In a fixed deposit arrangement, you can invest a part of your savings for a specific period. Depending on the size of funds, banks allow you to invest your funds for as low as a week. But it is imperative to understand that the fixed deposit interest rates depend on how long you decide to park your funds.
It is noteworthy that most banks don’t allow premature withdrawal, and even those who do, they will pay you a lower interest rate than previously agreed upon at the time of accepting your funds.
There are two types of fixed deposits. They do not differ in their basic working, but in the way, they credit interest to your account.
Cumulative fixed deposits are the traditional FDs, i.e. they pay interest to you on maturity along with the principal amount. The bank reinvests the interest part, and you receive it as a lump sum at the end of your fixed deposit term. It offers compounding benefits and is suitable for those who do not need a periodic stream of income.
Non-cumulative fixed deposits operate like a savings bank account. Here, the bank pays interest to the investor at regular intervals. So even though you get steady inflows, you lose out on cumulative interest or interest on interest. We only recommended it for those looking for periodic interest influx from their investments.
It is imperative to understand that you cannot invest all your savings in equity (owing to its uncertain nature) or in a savings account. A balanced portfolio requires you to deposit some funds in risk-averse investment vehicles for optimum performance.
In such cases, it is safe to say that fixed deposits are amongst the best risk-averse investment tools available in the market today and are a great investment option for hedging your equity investment. It is also feasible for those who want to eliminate the risk factor completely.
It goes without saying that a rupee today has more value than a year or two later. Even though the nominal value remains the same, the purchasing value falls over time. So if you think that parking your money in a savings account is keeping it safe, think again.
Fixed deposits, or high-interest term deposits, offer several advantages over the traditional savings account and helps you build your savings. Here’s how –
A savings account bears an interest of 4% per annum or a bit higher. Investing in a fixed deposit entails a return of around 7% or higher in most cases. Look for high-interest term deposit and ensure significantly better returns for yourself. At Shriram City Union Finance, we offer the best fixed deposit interest rates for our customers.
If you invest in tax-saver FDs, you can benefit by claiming deduction against the same under Section 80C of the Income Tax Act, 1961. The maximum limit is ₹ 1,50,000, or the amount invested (lower) for every financial year. The interest you earn is taxable.
If you are looking to park your unutilized funds in a safe investment tool, fixed deposits are the way to go. These do not react to market volatility and ensure you get a fixed return on the date of maturity.
Investing in provident funds locks your fund for fifteen years. You can make partial withdrawals after seven years, but the flexibility is nowhere close to that of fixed deposits. With term deposits, you can plan for a future expense and lock-in your funds for a specific period to cater to it. If the expenditure gets delayed for some reason, you can reinvest the amount to ensure that you don’t lose the actual value of money.
Your neighbour, Mr X, is a stock market expert and regularly invests his unutilized money in it. But you do not have any idea of the stock market or mutual funds. It doesn’t mean that you will still have to invest in any of them. These are market-dependent, and the returns are highly volatile. A fixed deposit ensures you get an agreed return, eliminating the risk factor and offering the best investment returns.
A savings account offers you limited options, but you get a plethora of options while investing in a fixed deposit. The best part? You get better returns than investing in a savings account irrespective of your choice.
If you are looking for a viable fixed deposit partner, consider Shriram City Union Finance because –
Click here to get a fixed deposit to boost your savings with Shriram City Union Finance today.