Fixed Deposits have always been a preferred investment choice for most investors in India. Considered to be a “safe” investment option with almost no risks, it explains why bank FDs have been popular in the past and continue to be the same today.
Many people start their investment journey by choosing a bank FD as the first option. However, with so many investment avenues, is an FD really worth investing in? As a low-risk investor, is it the only alternative you have? Let us try to weigh the benefits and potential pitfalls of FDs.
Benefits
Take a look at the multifarious advantages that make FDs a great option:
- A safe and low-risk Investment
Low-risk investment is always good news for people with a low-risk investment appetite. Plus, FD offers a fixed return that remains unaffected by the market rates. So, bank FDs can be a great investment option for someone who wants to be on the safer side.
- Loan facility
In case of a financial crisis or emergencies, you can borrow a loan against your FD as the collateral. The loan is provided in the form of an overdraft. You can repay the amount according to the repayment term you choose. And the best part is you will still receive the interest on your fixed deposit amount.
- Flexible interest withdrawal
You can take away your accumulated interest every month, every quarter, or every year. Certain banks offer bank FDs with flexible tenures and flexible returns withdrawal periods.
- Special privileges for senior citizens
The advantages of fixed deposits are even greater for senior citizens. Bank FDs offer a higher interest rate to senior citizens, proving it to be a good retirement investment plan or for parking your retirement fund.
Pitfalls
Despite the numerous benefits of a fixed deposit, there are some drawbacks that you need to be careful about before you commit to one.
- Low returns
The biggest drawback of investing in a bank FD is low returns. The returns you would get with FDs are far less than what you could get with the stock market investments, mutual funds, and other similar investment options.
- Penalty on withdrawal before the maturity
Another thing you need to keep in mind is that if you want your money back or break the FD before the fixed maturity period, you would have to pay the penalty.
- Scarce tax exemption
A smart investment helps you save on taxes. Unfortunately, a bank FD does not facilitate you with this advantage. Under Section 80 C, you can keep yourself from paying the tax on the interest earned from FDs. However, if the interest income exceeds ₹ 40,000, you have no choice but to pay the tax.
Bottom Line
There’s no denying that bank FDs are an excellent option for someone who has just begun investing, or someone with a low-risk appetite, or senior citizens who don’t know much about current investment options. However, it is suggested that you weigh the pros and cons of investing in one and then make a decision.
