There are several options available for investment purposes today both in conventional and non-conventional categories. The traditional or conventional saving instruments have been around for a long time now and people have been using these across generations.
The traditonal saving instruments include bank FDs (Fixed Deposits), post office schemes like KVP (Kisan Vikas Patra) and NSCs (National Savings Certificate), real estate, RDs (Recurring Deposits) Gold etc. Despite having multiple investment instruments, 90% of Indians still prefer FDs for investing their money.
Why People Prefer Bank Fixed Deposits?
With online banking prevalent these days, the FDs can be made online in most of the banks. You don’t need to visit the branch for the same. They are the most popular option for investing because of these two reasons.
- The principal amount invested remains safe and intact.
- The returns are fixed and there is no change in it if you keep the FD for the specified period.
Bank FDs: Key Features
- You can invest money for a period ranging from seven days up to ten years. This makes it convenient for everyone to open an FD by choosing the tenure as per their requirement.
- The bank FDs have both options available: getting the amount credited to the bank account and auto-renewal. You have to opt for the required option while making the FD. In the auto-renewal process, the FD gets renewed for the same tenure as it was made earlier automatically. However, the interest rates that were applicable to it when you first opted for it might differ. It will be renewed at the current rate, which might not be the best FD rates available.
- Bank FDs provide cumulative as well as non-cumulative interest options. The cumulative options are good if you don’t want the interest money in between as the interest then continues re-investing. In this option, on maturity, the total amount gets credited to your account. In the non-cumulative option, the interest can be credited to your account periodically. Generally, banks offer monthly and quarterly payment frequency.
- The interest rates differ from bank to bank. To get the best FD rates, you need to check. The senior citizens, however, get an extra 0.50 per cent in most banks.
- In bank FDs, the interest is taxable. The interest you receive gets added to your annual income and gets taxed according to your income tax slabs. Banks generally deduct some tax under TDS (Tax Deducted Source) unless and until you instruct them against it by submitting form 15H at the start of every financial year.
- FDs are quite a liquid instrument and if you require money suddenly you can choose premature Fixed Deposit withdrawal. The amount will be credited to your account within one day. However, you have to pay a certain penalty on it for premature withdrawal.
Most people are aware of this savings instrument, which provides good returns while keeping the principal amount safe and secure. Thus, people consider it as a great combination of safety and good returns.