Should you invest in fixed deposit or not? Take your stand!

Investing in fixed deposit for gaining better returns and benefits is a common practice among people. You can invest in any of the fixed deposit to get higher interest and better returns. You can choose a period of minimum seven days to maximum 20 years as per your requirements. Different banks and financial institutions offer different rate of interest on FD from maximum 8.5% to 6.4% depending upon the tenure, amount and financial institution. You can gain more profit on your invested money by saving your money in fixed deposit. Fixed deposit interest rates are higher than the normal saving plans and bank account rates. You can choose the right saving partner to gain more benefits.

Fixed deposit is one of the most safest and secured mode of investment to get assured returns. But, one should not invest in any of the saving plan without knowing their terms and conditions. You should be well-aware of the advantages and disadvantages of any investment plan before diverting your money. If you are not getting the desired results or your money is not growing in the same manner, which you were expecting then your purpose of investing the money in that plan goes in waste. You can compare and calculate the amount you are investing and the profit or type of returns you are gaining on your investment. Before, you invest your money read more about the product, get information about the similar kind of product and after comparing all the positives and negatives  then only you should make a decision. Here are some advantages and disadvantages of fixed deposit for understanding this investment tool better.

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Advantages of Fixed Deposit

Guaranteed Returns: The most important and the best advantage of fixed deposit is that it offers guaranteed returns on your invested money. This feature makes it more preferred among those who really don't want to take risk with their investment. Your investment is always in safe locker when you invest in fixed deposit. In other words, you need not to worry much about the fatal losses, which are linked with other kind of investments such as stock market or commodity market.

Liquidity of funds: Fixed deposit are flexible in nature. You can break your fixed deposit whenever  you want to withdraw the money. However, the premature withdrawal results in some loss of interest rate of fixed deposit, but still you gain more money compared to other saving plans. If you are in urgent need of money you can discontinue the fixed deposit and get the money credited into your account within 24 working hours. It is always better to withdraw the money from fixed deposit rather than selling your stocks or mortgage your property or gold, which will further increase your financial pressure.

Available in different tenure: Fixed deposits are available in the market for different terms or duration. These are available from minimum 7 days to maximum 20 years. You can choose a term as per your convenience and financial goals. You can deposit any amount for the tenure you are comfortable with. This feature also makes it more popular among people.

Tax benefits: There are fixed deposits, which provides you tax benefits as well. You can claim tax benefits of upto Rs. 1.5 lakh under Section 80C. Though, there is no upper cap to invest the money in fixed deposit, but you can claim the tax benefits of upto Rs. 1.5 lakh only in a financial year. The tax benefits are only available on special tax saver FD of five years.

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Avail loan against FD: If you are in urgent need of money and you don't want to break your fixed deposit before the maturity then you can borrow the loan against your fixed deposit from the bank. You can borrow maximum 90% of the amount against your fixed deposit.

Disadvantage of fixed deposits

Lower returns compared to inflation ratio: The biggest disadvantage of fixed deposit is if the inflation ratio is higher than the fixed deposit interest rate it will affect your funds. If the inflation is very high in that scenario the fixed deposit investors are the worst hit. The returns on fixed deposit may not be sufficient to cover the high expenses due to the higher rate of inflation.

Don't invest all your money in FD only: Fixed deposit is a secured mode of investment. But, it is never recommended that you  invest all your money in fixed deposit only. If you will deposit all your money in fixed deposit, then you will miss the opportunity of gaining more benefits from diversified investment routes such as stock market, gold, commodity market and real-estate.

Penalty on pre-mature withdrawal: If you will withdraw your money before the maturity of the fixed deposit, the bank will deduct penalty amount from the fixed amount and then it will credit the remain money into your account. So, in case you are required to withdraw your money before the maturity period in that case get ready to pay the penalty on the amount.

(Updated on:1 November,2016)

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