Why Are Fixed Deposits Still A Popular Investment Option?

By Author: Shreya Eppili
Total Articles: 62
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Fixed Deposits have been a preferred investment choice for millions of people. Despite the emergence of newer and potentially higher-return investment vehicles, FDs are favoured by conservative investors. But what makes FDa so popular? Here are reasons why FDs remain a trusted and widely chosen investment option:
Safety
The primary reason people invest in an FD is safety. FDs are considered a low-risk investment, as the bank secures and guarantees your principal amount. Unlike equity markets or real estate, which can be volatile, an FD offers predictable and secure return, ensuring peace of mind for investors.
Guaranteed returns
FDs offer a fixed interest rate during the selected tenure, meaning that investors know exactly how much they will earn at maturity. FDs provide a predictable income, which is especially appealing to those who rely on their investments to generate regular income, such as retirees or individuals saving for a specific financial goal.
Easy to open and manage
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... Opening an FD is straightforward and requires minimal paperwork. Most banks let you open an FD with just a few essential documents, and many offer online facilities to manage FDs. The entire process is simple and hassle-free, making it accessible for investors of all ages.
Premature withdrawal
Although FDs are meant to be long-term investments, they offer liquidity in case of emergencies. If you need access to your funds before the FD matures, most banks allow for premature withdrawals, though a penalty, usually a slight reduction in interest rate, may apply. Such flexibility provides investors with a safety net in case of urgent financial needs.
Option for auto-renewal
Many banks offer an auto-renewal facility for FDs, where it is automatically renewed for the same tenure and interest rate at maturity. This is convenient for individuals who do not want to monitor their FDs actively and ensures that the invested amount earns interest without requiring further action.
Portfolio diversification
While FDs may not offer the high returns of stocks or Mutual Funds, they are an excellent asset for diversifying your investment portfolio. They provide a steady and low-risk return, which balances the volatility of other assets in your portfolio. Having a portion of your wealth in FDs can help cushion against market swings and offer stability.
Complete transparency
Banks provide clear and transparent information about their FD products, including interest rates, tenures, and any penalties for early withdrawal. This makes FDs an easy-to-understand investment for most individuals and allows for better decision-making. Furthermore, banks offer online calculators to help investors estimate the returns on their FD interest rate and tenure.
Conclusion
FDs remain a highly popular investment option due to their safety and guaranteed returns. Despite the availability of newer, potentially higher-return investment products, FDs are the go-to choice for conservative investors and anyone looking for a secure investment. FDs can play a crucial role in your financial strategy.