A fixed deposit, also known as an FD, is a form of investment instrument provided by banks and non-banking financial companies (NBFCs). You invest for a certain period of time and receive a fixed interest rate against your FDs. You can calculate what rate of return you'll get and how much money you'll get as the investment matures when you make it. You will have the luxury of picking a regular interest payment method. Fixed deposits are one of the safest investment options because they have guaranteed returns while still protecting your capital. You can open an FD account with any bank, including public, corporate, small finance, and overseas. In the current period of market volatility, investing in a fixed deposit will provide you with guaranteed returns and consistent capital growth, allowing you to develop your investments without being affected by market instability. On two to three year fixed deposits, here are the interest rates provided by various public and private banks.
Benefits of investing in fixed deposits
Investing in a fixed deposit has always been a popular option among risk-averse investors because of the assured returns and no market-related risks. Fixed deposits are therefore not market-related, meaning market uncertainty has no impact on them, making them an excellent option for those who are unfamiliar with the stock exchange. A fixed deposit is a financial instrument with a fixed rate of interest for a certain time frame. The duration of a deposit can be as short as seven days or as long as ten years. Investors are paid a higher rate of interest, and as a result, their yields are higher if compared to savings accounts of banks or post office. Some main advantages of investing in fixed deposits are as follows:
Returns: Fixed deposits are among the best investment options available because of the assured returns unlike stock market or mutual funds. FD borrowers are given a fixed rate of interest that stays constant over the term of the FD. Investors know what they should get from their FD at the time of maturity.
Liquidity: People are less afraid to invest in fixed deposit accounts because they do not include any substantial risk. Furthermore, since it is a liquid alternative, depositors can rest assured that if an emergency occurs, all they have to do is prematurely break the FD and resolve the issue.
Deposit Insurance Cover: Bank fixed deposits (both retail and small finance banks) are covered by Rs. 5 lakh insurance policy. The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI), provides this security.
Tax deduction: Almost all the banks provide tax-saving FD schemes to their customers, which help them to reduce their taxable income. Almost all the banks provide tax-saving FD schemes to their customers, which help them to reduce their taxable income and, as a result, the rate of income they must pay. Up to Rs. 1.5 lakh of the amount can be invested in a tax-saving fixed deposit, which can be used to claim deductions under Section 80C of the Income Tax Act, 1961. No premature withdrawal is allowed on tax-saving FDs as they come with a lock-in period of 5 years.
An additional benefit for senior citizens: Fixed deposit interest rates are higher for senior citizens. Senior citizens' preferential rates generally range from 0.25 per cent to 0.65 per cent higher than normal FD interest rates.
Interest payout option- A fixed deposit's interest is paid in two different ways: cumulative and non-cumulative. The cumulative option applies to the accumulation of interest on which additional interest is received and paid at the time of maturity. The non-cumulative alternative is directly opposed to the cumulative option. Interest is paid at regular intervals, which can be monthly, quarterly, half-yearly, or yearly, depending on the depositor's preference. Non-cumulative options are good for those who want a steady income, but cumulative options are best for those who want to maximise their returns by having compounding task for them.
Loan against FD: Rather than take out an unsecured loan at a high rate of interest, fixed deposit holders can fund their emergency by borrowing against their own fixed deposit. Over the applicable fixed deposit rate, a small amount of interest of 0.5 per cent to 2% is levied.
Who should invest in fixed deposits?
Astonishing occurrences in recent months have had a lasting effect on the market. Companies in a variety of industries have struggled to remain competitive through the difficult periods of global downturns, swaying stock indices, and evolving customer trends. This has also resulted in a switch from market-linked investments towards low-risk investments for most of the investors. As a result, the ever-popular fixed deposit (or FD) has resurfaced. People of varying ages and risk levels who want the promise of assured returns are currently considering investing in fixed deposits even if the returns are low. Unlike several market-linked investments, the returns on your FD are guaranteed and not subject to market volatility. FDs are therefore a must-have in your investment portfolio during the current turbulent times. Continue reading to learn that now is a good time to invest in a fixed deposit. Even though FD interest rates are currently around 4-6 per cent, investing in small finance bank FDs will yield attractive returns of over 7%. The current example illustrates how a fixed deposit will assist in resolving the risk-return dilemma. Despite the enormous market volatility and risks, a fixed-income investment is a decent way to keep the investments secure while also generating wealth. Furthermore, investing in a fixed deposit is a flexible choice since you can select your tenures, interest payout frequency, and deposit amount as well. You can seek to improve your savings in a flexible manner with simple online FD facilities and the ability to ladder your holdings or take a loan against FD to finance your crises.
2 to 3 year FD rates
Here're the different public and private sector banks that are currently providing higher interest rates on 2 to 3 year FDs for the amount below Rs 2 Cr. (Source: Bank websites).
|Public Sector Banks||ROI in %|
|Bank of India||5.3|
|Punjab & Sind Bank||5.25|
|Indian Overseas Bank||5.2|
|Punjab National Bank||5.2|
|Bank of Baroda||5.1|
|Central Bank of India||5.1|
|Private Sector Banks||ROI in %|
|City Union Bank||5.75|
|Tamilnad Mercantile Bank||5.65|
|Karur Vysya Bank||5.65|
|South Indian Bank||5.5|
|Jammu & Kashmir Bank||5.2|