9 Reasons Why FD is Better Than Savings Account

Fixed deposit or FD is an investment tool that is provided by banks and non-banking financial firms (NBFCs). This helps investors to comfortably deposit their investments and receive stable returns. But when it comes to a range of benefits and higher interest rate, FD is the ideal choice to invest as compared to a savings account.

Fixed deposits are referred to as term deposits in the banking sector because such deposits are kept for a fixed period (usually within 7 days to 10 years). In fact, these are covered by the Deposit Insurance and Credit Guarantee Corporation or DICGC under insurance coverage of up to Rs. 5 lakh. But what makes you prefer FD to a savings account? Let's go through the below-listed 9 reasons to hunt the answer.

9 Reasons Why FD is Better Than Savings Account

1. Guaranteed returns with high-interest rate: You can earn highest interest rates in India when investing in fixed deposits which allow you to achieve good returns. Even with a short-term deposit, you can earn higher returns as compared to a savings account. The interest rates applicable in FD are always risk-free because they are not influenced by the market.

2. Risk-free investment pool: Money deposited in FD are completely secured, DICGC, RBI's fully-owned affiliate assures for paying Rs. 5 lakh compensation (per bank) if the bank meets 'lack of liquidity'.

3. Affordable investment option: As it sounds clear you can start investing from a minimum amount of Rs.100. Most of India's leading banks allow a minimum deposit of Rs.1,000 too.

4. Flexible tenure: Investors can opt to invest their money for a tenure of 7, 15 or 45 days to 1.5 years and can be as high as 10 years and also the tenure varies from one bank to another.

5. Higher returns: FD is among the most desired investment alternatives in India. Fixed deposits offered by different banks and NBFCs are quite prominent among investors, as it provides higher and guaranteed returns. The interest rates depend on the age of the investor, tenure and bank / company.

9 Reasons Why FD is Better Than Savings Account

6. Apply for a loan against FD: Investors in periods of need can request for a loan on their FD investments. Instead of going for high-interest personal loans, you can avail Loan against FD if you have invested in a fixed deposit. No processing fees charged for a loan against FD and the loan amount can be repaid as a lump sum or in instalment.

7. Apply for a credit card against FD: You can avail for a secured credit card against your FD. The credit cap of a secured credit card is determined on the basis of the amount of the fixed deposit a borrower is willing to mortgage.

8. Premature or Partial Withdrawal: FDs with premature withdrawal option enable investors to exit it before maturity. Moreover, investors are mandated to pay the bank a premature penalty up to 1-2% for withdrawal of the FD amount prior to the deposit term.

9. Higher interest rates for senior citizens: FD is the much-needed financial support to enjoy post-retirement years for senior citizens as it provides higher interest varying from 0.25% to 0.75%. Apart from this, senior citizens will also get an option of premature withdrawal facility along with loan against their FD accounts.

Goodreturns.in