The pros and cons of investing in fixed deposits
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The pros and cons of investing in fixed deposits

  • Highlights

  • Fixed deposits are low-risk investment tool

  • Interest returns of FDs are not tax free

  • FDs offer flexible pay-outs

  • Pre-mature withdrawal of FDs can incur penalties

Fixed deposits (FD) are a great way to kickstart your investment portfolio. Not only are they easy to comprehend, but they also help individuals grow their savings at low risk. They hold your money for a fixed tenure, accruing interest till maturity.

The interest rates offered on FDs are higher than those for savings accounts, allowing you to gain better returns. Since there is no market involvement in FDs the risk factor is extremely low, making them a popular investment option among first-time investors and senior citizens.

Advantages of investing in FDs

Fixed deposits are a great way to save and grow money for the future. Read on to find out the advantages of fixed deposits.
- Safe investment: Returns from stocks, mutual funds and debt funds depend on the market unlike those from FDs, making FDs a much safer investment. Additionally, the fact that they provide guaranteed returns make FDs a great choice for individuals with a limited amount of money to invest.
- Fixed tenor: A FD scheme comes with a minimum tenor of 6 months and a maximum of 5 years. This ensures that you safeguard your money and gain reasonable returns on it.

- Loan against FD: When you’re in a cash crunch, rather than breaking your FD and incurring a penalty, you can simply take a loan against your FD, with a loan amount of up to 90% of the total FD value. With Bajaj Finserv’s pre-approved offers availing loans gets even easier. Share a few details and get your pre-approved offer.
- Flexible interest rate pay-outs: FDs allow you to select the term, and when the interest is credited to your FD account. You can choose between annual, monthly, or at-maturity pay-outs. FDs also offer higher interest rates for senior citizens. Bajaj Finserv FDs, for example, offer an additional interest rate of up to 0.25% (above the existing rate), for senior citizens.

Disdvantages of FDs

While FDs offer major advantages in terms of guaranteed returns, they also have a few disadvantages, including:
- Low returns: While FD returns are guaranteed, they are also low as compared to other short-term market-linked investments.
- Liquidity: Withdrawing your FD before the date of maturity leads to a penalty charge. You may also get a lower interest on the total investment when you break your FD.
- Tax returns: Interest earned through your FD falls under the taxable slab of your income. If your interest earned is higher than Rs.10,000, it will be deducted as TDS at the rate of 10%. For senior citizens, this minimum amount has been raised to Rs.50,000. To increase your tax benefits from FDs, go with tax-saver FDs. Remember though that if you open a joint account, only the first holder of the deposit can avail the tax benefit as per section 80C of the Income Tax Act, 1961.

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