Why Should You Invest In Fixed Deposits (FD): Importance Of Emergency Fund, Best Interest Rates

Fixed Deposits or FDs are known to be one of the most popular and traditional investment options. But, none of the long-term or short-term returns are significantly high in the case of FDs. At present, short-term FDs are fetching around 3-4% interest rates, while most of the long-term FDs are fetching around 5-7% interest rates. Only a few banks are proving around 7.50-8% interest rates for senior citizens. However, FDs are not yet losing their importance among investors.

Better interest rate

This year, the central bank of India, RBI has hiked its repo rate. The Repo rate is known as the rate in India, at which the RBI gives loans to the operating banks against government securities. So, after hiking the repo rate, the banks are able to offer better interest rates to the investors on FDs. Earlier, in 2020 after the pandemic started, the central bank started to cut the repo rate, to offer more liquidity in the country. Then personal loans, housing loans, car loans, etc. Became more affordable. Now, the loans are a bit costlier, but FDs are more profitable among the assured income options, due to the higher interest rates offered on FDs. Recently top banks like Federal Bank, SBI, ICICI, etc. have increased their interest rates on FDs. Additionally, senior citizens get a higher interest rate on FDs, than the common public, which is another reason they prefer this investment.

Emergency Fund

FDs are also knowns as good emergency funds. These investments are not linked with the equity markets, so, receiving assured income is the key part of FDs. Before investing in FDs, investors must select a particular tenure he/she is investing for. After the maturity period, the principal amount will be paid by the bank or post office (where the investment has been made), along with the interest amount. Or during the tenure, an investor can also receive the interest amount quarterly or monthly, which suits the bests. Considering this opportunity, investors like FDs for an emergency fund, where the total investment amount will be highly safe with the bank/post office. The returns will not vary on the volatility of the equity markets. For marriage, health purposes, or for any other family necessities, an FD is a highly recommended investment tool, for an assured income option. Advisers recommend investing a part of the total portfolio in FDs, due to this reason.

Additionally, the union government insures the FDs up to Rs. 5 lakhs, so, investors do not need to worry about losing money.

Read the best interest rate on FDs by Public Banks here:

Read the best interest rate on FDs by Small Finance Banks here:

However, interest rates on FDs are subject to change depending on the RBI repo rate. Hence, investors are recommended to check the interest rates before investing.