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Saturday, June 9, 2018

Fixed Deposit Advantages and Disadvantages

Fixed deposit accounts are like a savings account with a fixed term. The money has to stay in the account of the full term for you to get the maximum benefits from it. Term deposit interest rates in India varies according to tenure of the deposit and also depending on the FD scheme. The interest rate also varies between banks.

Fixed deposits are convenient savings schemes, but they’ve both benefits and drawbacks:

Advantages of Fixed deposits

  • Fixed deposits are easy to open, you can create them online
  • Online customer portals give you the facility to manage FDs and check on their current status easily
  • Fixed deposits are relatively liquid. Most FDs except tax saving FD can be broken before term if you are in urgent need of funds
  • You can get loan against FDs, which helps you avoid the penalties and interest loss involved in breaking an FD before full term
  • Fixed deposits are highly flexible you can open an FD for as few as 7 days to as long as 10 years
  • Your money in a bank is insured up to a maximum of Rs.1 lakhs, and bank and NBFC fixed deposits operate under strict RBI guidelines. So, both the prmcipal and the returns are safe and guaranteed
  • You can create income plans with FDs by opting for monthly or quarterly interest payouts
  • You can choose interest compounding and increase the returns you get on the FD

Disadvantages of Fixed Deposits

  • Fixed deposit interest rates are not high, so you get very little return on investment
  • FD interest earnings are fully taxable
  • Combined with low interest rates and taxes, fixed deposits are not the ideal investments to beat inflation
  • Fixed deposits can be broken before term, but this involves penalty charges and loss of interest
  • Fixed deposits are popular savings schemes in India, they are secure and provide guaranteed returns. Combine a few FDs along with mutual funds and share market investments in your portfolio, balance out risk and growth of funds.

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