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Why do Indians Prefer Investing in Fixed Deposits?

Investments are an essential aspect of financial portfolios. One of the preferred choices has always been FD’s. Especially in our country, it is an ideal choice as the risk involved is low, and the returns are guaranteed. Since FDs are not market-linked investments, market volatility does not play a role making it the perfect choice for those less aware of the capital market.

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Here are some other benefits of an FD, whichmakes it a credible investment option and also help you plan your financials in a better way:

  1. Fixed Interest During Tenure

When you opt for a fixed deposit, you will be provided with a rate of interest that remains the same throughout the tenure.  Doing so will enable you to know what to expect from the investment. Thus, helping you plan your financials in a better way.

  1. Backed by Deposit Insurance

Generally, banks are backed with an insurance of Rs. 5 lakh. It is a cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve bank of India.

In an event where the bank is unable to return your savings, you can get a compensation of 5 lakh by DICGC. Earlier, this cover was of Rs. 1 lakh but has now been increased to 5 lakh. It is according to the guidelines of RBI and the regulations of the Union Budget, released in the month of February this year.

A benefit of this regulation is that whatever amount you have deposited in the FD, be it lesser than the insurance cover, you are entitled to the full coverage amount.

  1. Avail Loan Against FD

Instead of taking loans at a high-interest rate, with an FD, you have an option to finance any emergency. You can choose to opt for a loan against your fixed deposit. Banks generally charge a small percentage of interest over the applicable fixed deposit rate.

In this manner, you do not need to pay the hefty interest rates of a different loan and compromise on the fixed deposit interest as well.It can be done without breaking your FD.

  1. Tax-Saving

Generally, banks provide the tax-saving FD options, which help in bringing down the taxable income. In turn, it lessens the tax that has to be paid as well. You can put up to Rs 1.5 lakh of the amount in a tax-saving FD, which can then be quoted in deductions under 80C of the Income Tax Act. Do take due notice, that majorly these schemes come with a lock-in period of 5 years. Thus, before 5 years, no premature withdrawals are allowed, except during unexpected situations like untimely demise.

  1. Flexibility During Interest Payout

The interest earned in an FD is paid in two ways- cumulative and non-cumulative. Cumulative option means the buildup of interest on which further interest is earned and then paid on maturity. On the other hand, the non-cumulative option is the exact opposite. In this method, the interest is paid at regular intervals, as per your suitability. You can opt for the monthly, quarterly, half-yearly, or yearly option.If you are looking for a steady income, the non-cumulative option is ideal. Otherwise, you can wait to earn maximum returns by letting the power of compounding work by opting for the cumulative route.

  1. Higher FD Rates for Senior Citizens

Many banks offer senior citizens higher FD interest rates. The preferential rate for senior citizens generally ranges from 0.25%- 0.65% above the standard fixed deposit interest rates. Thus, it is a lucrative saving option for senior citizens.

Ensure Disciplined Savings with FD

With these advantages, it can be said that Indians are not wrong in their choice of FD’s as a go-to investment option. If, however, you have not started your investment journey, then you should start immediately. You can opt for reliable banks like Axis Bank that offer different FD options.

Visit their website and read the policy wordings of each plan. Use the fixed deposit calculator to match your suitability. You can also contact their team of experts for more guidance through the procedure and documents.

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