Investing for future is a difficult task. There is a lot of confusion with large number of emerging potential instruments and lots of options. For the people who are unaware and have never invested before in mutual funds, equity, etc. can discourage to invest due to many questions about the potential risk involved. But this does not mean that the money should sit idle in a regular savings account instead of revolving and creating more. There are lots of investment plans that lower the risk segment to almost negligible levels while giving a decent return. Fixed deposit is one of the best, safe and sound investment options for beginners.
Fixed Deposit (FDs) is a financial product where money is invested for a fixed period of time at a fixed rate of interest in a bank or post office. The deposit made in the bank receives the same rate of interest throughout the FD’s tenure regardless of the market fluctuations.
The maturity amount can be transferred or collected on the date of maturity of the Fixed Deposit. If the money is not collected and any further instructions are not given to the bank, the FD will be automatically renewed for the same tenure. The rate of interest is updated as per the current rates at the time of renewal.
FD is standard financial instruments where most investors prefer to put a part of their money because it acts as a safety net in case of riskier investments fails to perform. Following are the ideal reasons to invest in Fixed Deposits for the beginners:
Easily Understandable:You don’t have to depend on a Chartered Accountant, need to learn anything new, or even keep an eye on the markets statics to earn from an FD. Fixed Deposits (FD’s) can be easily understood by a first-time investor. In fact the depositor does not have to visit the bank more frequently to complete the earlier inconvenient process. One can easily apply for an FD from the comforts of their home or office! The interest will be credited regularly (monthly, quarterly, semi-annually, or annually) or reinvested in the FD depending on the preferences of the customer or as notified at the time of opening the deposit.
Certain Returns: Generally the rate of interest on Fixed Deposits ranges from 5% to 8% depending on the tenure. The rate of interest remains the same throughout the years for which the FD is made, even if the bank lowers the interest rate later on. This means that the interest rate obtained on the day of opening the deposit will be used to credit the interest even after the rate changes. Generally, short-term FDs have higher interest rates as compared to long-term FDs which have lower interest rates. This is not always true since changes or fluctuations in bank’s repo rate decide the interest rate. If the bank predicts the fall in repo rate in the next five years, the interest rate will be higher for an FD with tenure of 5 years or less. Promotions are also done by the Banks when a certain short term FD is offered at the highest prevailing interest rates to attract more investors.
Best for Idle Money: It is always better to invest and revolve your money in a fixed deposit account than letting it stand still in a savings bank account, or worse, in a current account. Better returns are offered in FDs as compared to a savings account since their interest rates are higher.
Great Start: A Fixed Deposit can be great starting point for new investors. This mode of investment has a long time existence and people have acquired rich dividends from it. The returns on your investments are certain so there is no worry of losing your money.
Choice of Tenure: The tenure for a Fixed Deposit can range from 7 days to 10 years, giving you enough flexibility. However, it is important to note that the interest rate changes with the FD’s tenure. Long term FDs yield lower interest rates than short term ones.
Recommencement Facility: Beginners might forget to encash or reinvest their FD on its maturity date but if the FD account holder does not give any further instructions before the date of maturity, his investment will automatically be restored for the similar tenure. This is done to ensure that the money does not remain idle and earns interest instead.
FDs Can Be Used as Security:Banks are ready to fund loans against fixed deposits to their customers. These are secured loans in which the fixed deposit amount becomes the collateral. The maximum loan amount that can be borrowed from the bank is usually up to 90% of the FD amount. It is important to understand that the FD will continue to generate the interest normally even if a loan is availed against it. This loan amount can help to meet any urgent financial need.
By the time you educate yourself about the latest trending options to grow your money, FD is a perfect financial instrument for growing your money. Once you are ready to expand your portfolio, a mature amount of FD can help you with the funds to do so meaningfully. (Know more about Fixed Deposit & Its Benefits)