Fixed Deposits (FDs) have long been a staple of Indian savings and investment portfolios. Their popularity stems from their safety, predictability, and relatively attractive returns. Let’s explore why FDs deserve your attention and present compelling reasons to consider booking an FD as part of your financial strategy.
Safety and Security
One of the foremost reasons to consider fixed deposits is the low risk associated with these instruments. FDs are known for their stability and are considered low-risk investments. Unlike equities or mutual funds, the returns on FDs are not subject to market volatility. This makes FDs an excellent choice for risk-averse investors or those looking to preserve their capital.
The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures up to ₹5 Lakhs per depositor on FDs issued by banks. This insurance adds an extra layer of security, ensuring that even in the unlikely event of a bank failure, your investment is protected.
Assured Returns
Fixed deposits offer guaranteed returns. When you book an FD, the interest rate is fixed for the entire tenor of the deposit. This means you know exactly how much you will earn at the end of the investment period. This predictability is particularly beneficial for financial planning and goal-setting, as it allows you to forecast your returns accurately.
Attractive Interest Rates
FDs typically offer higher interest rates compared to regular savings accounts. The interest rate on FDs can vary depending on the tenor and the financial institution offering the deposit. Here are the compare fd interest rates offered by some major issuers as of May 2024:
| Issuers | Regular FD Interest Rates | Senior Citizen FD Interest Rates |
| YES Bank | 7.75% p.a. | 8.25% p.a. |
| DCB Bank | 8.05% p.a. | 8.55% p.a. |
| IDFC FIRST Bank | 7.90% p.a. | 8.40% p.a. |
| Ujjivan Small Finance Bank | 8.50% p.a. | 9.00% p.a. |
| Utkarsh Small Finance Bank | 8.50% p.a. | 9.10% p.a. |
| RBL Bank | 8.00% p.a. | 8.50% p.a. |
| Bajaj Finance | 8.60% p.a. | 8.85% p.a. |
*Disclaimer: These rates are subject to change at the issuer’s discretion.
As per the above table, the Utkarsh Small Finance Bank and Ujjivan Small Finance Bank FD rates are among the highest available in India. Research and compare the rates to find an FD that best suits your needs.
Flexible Tenors
FDs offer flexibility in terms of investment tenors, ranging from as short as 7 days to as long as 10 years. This flexibility allows you to choose a tenor that aligns with your financial goals and liquidity needs. Whether you are looking to save for a short-term requirement like a vacation or a long-term goal like retirement, there is an FD option for you.
Regular Income
Many investors, particularly retirees, prefer FDs because they offer the option of receiving interest payouts at regular intervals. These payouts can be monthly, quarterly, or annual, providing a steady income stream. This feature makes FDs an attractive option for those seeking a reliable source of periodic income.
Tax Benefits
FDs also offer certain tax benefits. Under Section 80C of the Income Tax Act, 1961, investments in tax-saving FDs (with a lock-in period of 5 years) can get a deduction of up to ₹1.5 Lakhs. Additionally, senior citizens can avail of a deduction of up to ₹50,000 on interest income under Section 80TTB. These tax benefits can enhance the overall returns on your investment.
Easy to Open and Manage
Opening an FD is a straightforward process. Most banks and financial institutions offer the convenience of opening FDs online or through their branches. Once opened, managing your FD is hassle-free. Many banks provide online platforms where you can track your FD, check interest earned, and even opt for auto-renewal.
Loan Against FD
In times of financial need, you can avail of a loan against your FD. Banks typically offer loans of up to 90% of the FD amount at interest rates that are marginally higher than the FD rate. This feature provides liquidity without the need to prematurely close the FD and incur penalties.
Compounding Benefits
For investors who opt to receive interest at maturity rather than periodically, FDs offer the benefit of compounding. Compounding interest means that the interest earned on the FD is reinvested and earns further interest. Over time, this can significantly enhance the returns on your investment.
Diversification
Including FDs in your investment portfolio adds an element of diversification. While equities, mutual funds, and other instruments offer growth potential, they come with higher risk. FDs provide a balance by offering stable and secure returns. A well-diversified portfolio can mitigate risk and improve overall financial stability.
Fixed Deposits deserve your attention for a multitude of reasons. They offer safety and security, assured and attractive returns, flexible tenors, and regular income options. The tax benefits, ease of opening and managing, the option of loans against FDs, and the compounding benefits further enhance their appeal.
For retirees, or anyone looking to balance their investment portfolio with a secure and predictable instrument, FDs are an excellent choice. Their ability to provide stable returns in a low-risk environment makes them a compelling option for a wide range of financial goals.
To get the most out of your FD, it is essential to compare interest rates across different banks, understand the terms and conditions, and align your investment tenor with your financial objectives. Always check the latest interest rates and policies on the official websites of the banks before making a decision. By doing so, you can ensure that your investment in fixed deposits is both safe and rewarding.