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How Are Fixed Deposits The Safest Investment Option?
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Fixed deposits are a type of investment in which an individual deposits a fixed amount of money in an account for a period of time. It has always been a popular investment option as it offers low risks and guaranteed returns. As compared to regular savings accounts, a fixed deposit offers a higher interest to the users. This type of an investment is ideal for individuals who wish to build their savings. Financial institutions offer four main types of fixed deposits to investors to choose from:
A regular fixed deposit allows you to deposit a fixed amount for tenure of 7 days to 10 years. The interest rate which financial institutions offer depends on the reference rate at the time of the deposit.
Tax Saving FD
A Tax saving fixed deposit is also called a recurring deposit. This type of a deposit requires individuals to deposit a fixed amount of money each month for a period of five to ten years. There is a compulsory lock in of five years during which the individual cannot withdraw money from the account. Under the 80C Tax Act, the individual avoids tax on the amount deposited. However, the government still deducts tax on the interest which has been earned.
A Special Fixed Deposit is a type of investment in which the individual can invest a fixed amount of money for a special period. The tenure of such deposits can be 190 days, 333days, 290 days, etc. The interest rate which financial institutions offer for such deposits is comparatively higher.
Floating rate FD
A floating rate fixed deposit is a different type of a deposit in which the interest rate offered is not fixed. Financial institutions offer this type of deposit where in the interest rate changes based on the reference rate. This allows investors to benefit from the changes in the interest rate offered which occurs because of the
RBI’s rate change.
The reason why fixed deposits are called as the safest investment option is that fact that the tenure and the interest rate is fixed. No influence of the market forces affects the interest rate offered to possibly reduce one’s returns. This type of a deposit is ideal for individuals who want to build their savings and make safe investments. It is only in the case of floating rate fixed deposit that the investor faces a slight risk due to the changes in the interest rate offered. However these changes are more likely to provide a more positive outlook for the investor.
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 & tax saving fixed deposit and how to make the right investment choice.
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