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Understanding the Nuances of a Fixed Deposit

When it comes to investments, we all like to keep it safe because even we are seldom aware of our exact financial needs. Here’s how a Fixed Deposit can help you. To know what Fixed Deposits actually are and how they can help you, let’s first understand savings. It’s something all of us should prepare for, as it becomes extremely important in the future.

However, that’s not the only reason. Recent trends in banking have shown that we want more than just mere savings from our investments, but we also want returns; and impressive ones at that. Since that’s been established, here’s how you can use fixed benefits to get just that and much more.



Considered one of the most conservative options, Fixed Deposits (FDs) are financial instruments in the form of savings accounts. Typically, in an FD, the money is deposited for a pre-decided period of time which is known as the Fixed Deposit maturity period. A fixed interest rate is charged for the same, which is paid off in the end.  For obvious reasons, this is the more popular form of investment when compared to market shares.

Advantages and Disadvantages

Surely, such a widely preferred form of investment must have something to offer seeing how it attracts so many investors to it; and it does. As with any other form of investment however, it has two sides. For investors on the more conservative side, they would see that the benefit of Fixed Deposit accounts far outweighs the consequences. Here are a few of these advantages and disadvantages, so you can make the call for yourself.

Advantages
  1. The first and foremost is the guaranteed and safe return of your investment. You will never lose the money you have already invested under any circumstances. The same cannot be said for market shares or stock market investments, which leaves you (the investor) grasping for whatever little profit you get.
  2. Get the benefit of a higher interest rate on your FD account, when compared to other savings accounts. This is where it becomes essential to pick a bank/NBFC that gives you the best possible deal.
  3. FDs are one of the highly liquid assets. If you want, you can even take a loan against your FD. You have the option of borrowing almost up to 90% of your FDs amount, if and when necessary. You can also pick your maturity dates as and when you find them convenient. Easy renewals and withdrawals of Fixed Deposit accounts also makes them a great option for those treading the investment market for the first time.
Disadvantages
  1. One of the largest blunders with an FD is the low returns; assured, but very low. If during the tenure, the inflation goes up, investors suffer in terms of their interest rate. To illustrate an example, if your FD interest rate is at 5% and the inflation rate is at 4%, your money has only effectively increased its value by 1%.
  2. Accessing your funds is a challenge for another day. You have zero flexibility that you would get with a regular savings account such as withdrawal. And if you do withdraw from your FD prior to its pre-decided maturity date, you risk a penalisation in the form of a penalty fee or a reduced rate of interest, either way it’s a significant loss considering the small amount of returns.
  3. You aren’t even getting any benefits in the form of taxation. FDs are taxed just like any other savings account, so you aren’t saving any money in that category either. Most of all, with a safe dull move such as FD, you risk losing the versatile stock and real estate market that can give you loads of benefits at a slightly higher risk and some smart calculating.
Keep these pointers in mind before you ultimately opt for a Fixed Deposit account.
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