The Advantages of Investing In Fixed Deposits Over Other Investment Options

A fixed deposit is a kind of fixed income instrument that provides many benefits. The benefits of a fixed deposit include high returns, stability, flexibility, tax savings, loan facilities, an easy application process, and no-frills renewal. 

Although investment instruments like stocks and mutual funds often provide higher returns than fixed deposits, they are hardly as secure and stable as the latter.

8 Reasons Why a Fixed Deposit is the Best Investment Option in 2023  

Since the beginning of 2023, the Reserve Bank of India has consistently increased the REPO rate. Since savings and fixed deposit interest rates in India depend on the REPO rate, banks have steadily increased the interest rates of the fixed deposit schemes they offer. 

Hence, now is the best time to invest in an FD for 6 months or higher and grow your capital quickly. 

The following are the top 8 reasons why the fixed deposit is the best investment option in 2023.

High Interest Rates

While FD interest rates were hovering around 5.5% a year ago, presently, the highest rate is 7.80% (for ordinary investors) and 8.30% (for senior citizens). 

However, this rate applies to an investment of under INR 2 crores for above 15 months and below 725 days. 

Also, an FD for six months will fetch you between 4.75% and 5.50%. 

Loan Facility

One of the best benefits of a fixed deposit is that you can use your fixed deposit certificate as collateral for a loan. 

A loan against a fixed deposit lets you get up to 90% of your investment amount as a loan. Generally, the interest rate of such loans is 2% higher than the prevailing highest fixed deposit interest rate.

 A loan against a fixed deposit is beneficial for two reasons – the interest rate is considerably lower than personal loan rates, and your fixed deposit continues to earn interest. 

Flexibility

You can withdraw fixed deposit interest in two broad ways – cumulative and non-cumulative. A cumulative FD returns your investment amount and the accumulated interest at the time of maturity. 

Investors often tie cumulative FDs to long-term financial goals. However, if you want a stable monthly income, invest in a non-cumulative fixed deposit. 

A non-cumulative FD provides interest monthly, quarterly, half-yearly, or annually and can address your short-term liquidity needs.  

Flexible Investment Term

FD investments usually start from 7 days, and you can invest for up to 20 years in one go. So, fixed deposits can be used to fulfil your short-term, medium-term, and long-term goals. 

Also, since fixed deposits are fully liquid, you can close your account anytime before maturity. 

However, banks levy a penalty on premature FD withdrawals. 

Tax Savings

Besides providing a high interest rate of up to 6%, a tax-saving fixed deposit lets you save up to INR 1.5 lakh every financial year. You can claim your investment as a deduction per Section 80C of the Income Tax Act to save taxes. 

However, unlike other FDs, a tax-saving FD cannot be closed before maturity, and if you try to close it, the tax benefits of the fixed deposit will be reversed. 

Security

A fixed deposit is a safe investment instrument. In India, fixed deposits are mostly managed by public and private sector banks. Banks work as per the guidelines issued by the Reserve Bank of India, which is controlled and managed by the Ministry of Finance, Government of India. 

Moreover, any amount of up to INR 5 lakhs in fixed deposits and savings accounts is automatically insured by the DICGC (Deposit Insurance and Credit Guarantee Corporation). 

Easy Application Process

One of the top benefits of fixed deposit investment is that it is quick and seamless. Banks, such as RBL Bank, provide an online FD opening facility. You can visit the bank’s official website and upload documents like your PAN and Aadhar card to open the account online.

Once the account is opened, the bank sends you an email containing the account details. You will also receive an SMS containing the details. 

No-Frills Renewal

Thanks to the auto-renewal or auto-maturity facility provided by banks like RBL Bank, you don’t have to visit the bank to renew or collect the maturity proceeds. 

You can opt for auto-renewal or auto-maturity when submitting your FD application to facilitate automatic transfers on maturity. 

Conclusion

The benefits of fixed deposit investment are many. But, it is important to choose the best bank to get the most from your FD. Visit RBL Bank to get interest rates of up to 7.80% per annum and grow your capital quickly.