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5 Ways Fixed Deposits Help In Saving Money

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By Author: Anujit Bhattacharya
Total Articles: 14
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Saving money is an essential habit that every salaried and self-employed professional develops in their life over time. Every individual aim to save a certain amount of money but end up spending it all. This could lead to more problems as you may require some cash for emergencies. It is a smart decision to save more and spend less. It is advisable to begin saving from an early stage and pile on fewer debts.

There are a plethora of investment options available in the market today right from mutual funds to share market and so forth. But all these are high-risk investments. If you are beginning the investment journey and looking for decent returns on your them, then the fixed deposit is ideal.

What are fixed deposits?

It is a kind of investment that is the safest one available in the market. Banks provide them anywhere between 7 days to 10 years. The interest rates are higher on an FD than a savings account. These interests get credited on a monthly, quarterly, and annual basis. In such an investment, you must invest your desired amount in one go. If you wish to withdraw the funds before maturity, banks levy a premature penalty on the FD.

How does fixed deposit help in saving money?

Insurance: Your FD account offers you coverage of INR 1 lakh of the amount you invest. If you invest a lump sum in the fixed deposit, you can do so by splitting the FD into smaller amounts and avail insurance for every deposit.

Premature closure: FDs offer you a higher rate of interest than a savings account as banks use your funds as their cash flow. If you wish to use the funds before the end of the maturity period, banks charge a penalty. The principal amount remains unaffected, but the decided interest gets deducted. In case of emergency, you can close the FD before maturity by taking a loan against FD. You can take a loan against FD for a lower interest rate as the bank has your fixed deposit as collateral.

Tax saving: The interest earned on fixed deposit is exempted from taxes under the Income Tax Act of 1961. But if you want to invest funds for a longer tenure and do not want to pay taxes, you can invest in tax saving FD. The principal amount you invest in a tax saving FD is non-taxable. Here the money gets locked-in for 5 years. Plus, you cannot break your FD before maturity and cannot avail credit on these deposits.

Interest rates for senior citizens: Some banks and financial institutes offer preferential interest rates to senior citizens. They receive higher interest rates than regular individuals. This fixed deposit interest rate for senior citizens varies from bank to bank.

Loan against FD: One of the most important benefits of investing in an FD is the provision of credit. The banks provide the loan keeping your FD as collateral. Also, the interest rates are lower here than the standard loans.

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