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The Pros And Cons Of Fixed Deposits
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Mutual funds, stocks and debentures are amongst the most popular contenders for investments, but they can be moderate in returns and risky. On the other hand, fixed deposits and government bonds are considered to be among the safer investments as they offer a guaranteed return and have low or negligible risk .With fixed deposits an individual can invest any amount whether small or big, the rate of interest depends on the amount and the tenure it is going to be deposited for. A fixed deposit provides investors with a higher rate of interest than a regular savings account until the given maturity date.
Pro’s of Fixed Deposits
Fixed deposits have been considered a safer investment because of guaranteed fixed returns with negligible risks involved as compared to stock or commodity market. Some other factors can also be considered while making a decision to invest your money in a fixed deposit .
• High rates of interest- The interest earned is comparatively greater than any other forms of savings account.
• Safety of future- A well planned investment with a good reputed financial institution is bound to make your future secure.
• Liquidity in nature- This means that one can withdraw the money invested, in case of any urgent need of cash instantly, unlike other stocks or real estate which take a longer time to sell.
• Flexibility in nature- One can deposit the money for 1month, 1 year or 10 years, the tenure is flexible and so is the value of amount, unlike real estate where one needs to invest whatever is the market price of the property.
Con’s of fixed deposits
• Lower rate of returns- The money invested in stock markets may give you higher returns whereas fixed deposits will yield much lesser. Therefore the growth of your money is very slow. This applies particularly on the retired people who may still have a regular income but their money’s worth keeps going down during the tenure due to inflation.
• No benefits of diversification- Once the money is invested in a fixed deposit you cannot enjoy the benefits one can get if the money is invested in stock market, gold or other alternate investments.
• Taxable returns- The interest earned on fixed deposit is fully taxable whereas any gain from stocks are considered capital gains which are tax free.
• Rising inflation –The benefits or returns are directly affected by the rising inflation. The interest rate given does not give you any protection against inflation, therefore, in the long run; the return on your investment is much lower than what you get from investing in some shares of a company.
• Premature withdrawal- In case of an emergency if you decide to break your fixed deposit before your tenure you will result in losing some of the interest income.
Author Bio :
An experienced writer on finance topics, the author articulates of investment choices such as fixed deposit products in India & recurring deposit schemes. She writes about a variety of topics including the benefits of recurring & fixed deposits and how to make the right investment choice.
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