Pros and Cons of Investing in Fixed Deposits

Discover the pros and cons of investing in fixed deposits for the Indian audience, and whether they are a good investment choice.
FD: Pros and Cons
3 mins
3 April 2024

Fixed deposits, often known as FDs, are becoming a more popular kind of investment in India because of their low risk and predictable returns. The amount of money is kept locked up and receives interest for the duration of the fixed deposit.

FDs do, however, have their benefits and drawbacks, just like any other type of investment option.

Pro tip

Enjoy higher interest rate with Bajaj Finance Digital FD. Unlock returns of up to 8.85% p.a. by investing for 42 months via our website and app.

Features of a Fixed Deposit Account (FD Account)

Feature

Description

Minimum deposit amount

The minimum amount required to open an FD account varies from different financial institution.

Interest rate

The interest rate on FDs is higher than that of savings accounts. It is fixed at the time of opening the account and remains constant throughout the tenure of the deposit.

Tenure

The tenure of FDs generally ranges from 7 days to 10 years.

Compounding frequency

The interest on FDs is compounded quarterly, half-yearly, or annually, depending on the Bank or NBFC policy.

Premature withdrawal

Premature withdrawal of FDs is allowed, but it attracts a penalty. The penalty varies from different financial institution.

Nomination facility

One can nominate a person to receive the proceeds of your FD account in case of a death.

Pros and Cons of Fixed Deposit Accounts

Pros:

  1. Low Risk: Fixed deposits are a low-risk investment option with good returns. The returns on an FD are fixed when the account is opened, unlike market-led investments where returns change over time. You will continue to earn the interest set at the beginning even if interest rates decline after you open a fixed deposit. Compared to investments in other assets like equity, FDs are thought to be much safer.
  2. Higher Returns: Earnings are one of the main factors in why people choose to invest their money in fixed deposits. You will find the interest rate on fixed deposits by Bajaj Finance on the Fixed Deposit page under investments. You can quickly find out your returns on a particular invested amount, after specifying your tenure and payout option by using the Bajaj Finance Fixed Deposit Calculator.
  3. Flexible Options: FD Accounts offer flexible tenures, ranging from a few days to several years. But you should pick a lengthy lock-in period if you want a fixed deposit with high interest. When you invest in a five- to ten-year fixed deposit, the interest rate will be high. With Bajaj Finance, you can also enjoy higher returns with special tenures of 18, 22, 33, 42 and 44 months
  4. Regular Income: Fixed-income investments produce an ongoing stream of revenue. While certain interest-bearing instruments, like PPF and FD, allow a regular payout option, others follow a regular timetable for interest accumulation. For a typical investor, the interest that has accumulated opens the door to greater growth due to interest compounding. With Bajaj Finance, you have the option to choose your payout. We offer monthly, quarterly, half-yearly, and yearly interest payouts suiting your needs and income requirement
  5. Safety: The majority of these instruments are supported by a state guarantee, preventing investment losses. As a result, they are perfect for reducing an investment portfolio's total risk while generating returns that are often greater than average. The Bajaj Finance FD has one of the highest [ICRA]AAA(Stable) and CRISIL AAA/STABLE ratings to ensure that your deposits are secured with us and safely invested.
  6. Portfolio diversification: A portfolio may be more susceptible to market risks if it is exposed primarily to equity assets. A diverse portfolio that is primarily made up of stocks, debt instruments, real estate, cash, gold, etc. is required for astute portfolio management.
  7. Benefits for senior citizens: We have a higher interest rate applicable for senior citizens on our FD. There is an additional 0.40% p.a. interest rate over and above the regular interest rates. You can also convert the interest gained on these deposits into monthly income, ensuring that you have a consistent income stream after retirement. It gives you the chance to steadily expand your funds with no danger at all. The interest rates that apply to fixed deposits are not affected by changes in the market and remain fixed at the rate at which the FD was initially booked.
  8. Loan Against FD: We provide the option to obtain a loan against FD. The deposit value and FD tenure are used to determine the loan amount. For cumulative deposit, loan of up to 75% of your invested amount and 60% of your FD in case of non-cumulative FD.

Cons:

  1. Limited Liquidity: FD accounts do not provide high liquidity, and premature withdrawals usually result in some penalties.
  2. Fixed Returns: The interest rate on FDs remains fixed throughout the tenure, and investors cannot benefit from any rise in interest rates during this period.
  3. Inflation Risk: The returns earned on FDs might not keep up with inflation rates, as interest rates are fixed, leading to a decrease in the real value of returns earned.
  4. Taxable: If the interest earned on FDs exceeds Rs. 40,000 for bank customers under the age of 60 (other than senior citizens), TDS (tax deducted at source) of 10% is applied, albeit this amount is deducted from the filing of returns.

Are FDs a good form of investment?

FDs offer a host of benefits, making them a good investment decision for individuals seeking stability and good returns on their investment. While FDs may not provide high liquidity or capital appreciation, they offer a high degree of security, making them attractive to first-time investors and senior citizens.

In conclusion, FDs are an attractive investment option in India due to their low risk and good returns. While they may not offer high liquidity or capital appreciation, they provide a stable and secure investment opportunity for investors. Bajaj Finance FDs offer high-interest rates, flexible tenures, and a range of benefits that make them an ideal investment choice. By weighing the pros and cons of investing in FDs, investors can make informed financial decisions that align with their investment goals.

Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD variant called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be opened and managed only through the Bajaj Finserv website or app.

Are Fixed Deposits a safe investment option?

Yes, Fixed Deposits are generally considered a safe investment option as they offer a fixed and predetermined interest rate, providing stability to your investment.

What are the advantages available to senior citizens for investing in Fixed Deposits?

Senior citizens often enjoy higher interest rates on Fixed Deposits, offering them enhanced returns and financial security.

What is the minimum and maximum tenure of a Fixed Deposit?

The minimum and maximum tenure for a Fixed Deposit typically ranges from a few days to ten years, providing flexibility to investors based on their financial goals.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.