One of the most widely accepted investment options for investors with a low risk propensity is a bank FD. In today’s volatile market, a bank FD is a wise investment. This is because asset allocation is one aspect you can give importance to during this unpredictable time. With this result, you can avoid taking risks by investing in a fixed deposit, which has returns that are not affected by market fluctuations. The most significant benefit of a bank fixed deposit is the guaranteed return. Other advantages offered to bank FD holders include tax benefits, loan against FDs, DICGC insurance coverage, and much more. Investing in a Fixed Deposit today can be a smart investment because of the certainty of returns and the assured growth of your investments. Apart from the interest rate, below are few other advantages of bank FD investments.
Loan or overdraft against FD
An overdraft facility is available to bank customers who have a bank FD. This functionality of a bank FD aids investors in getting a loan against their fixed deposit in times of financial need. By taking an example State Bank of India offers a loan against your fixed deposit (FD) to meet immediate cash requirements. This loan is available to single or joint account holders of SBI Fixed Deposits. Online banking allows single account holders to have an overdraft against their TDR and STDR. The minimum/maximum amount that can be borrowed for a loan or overdraft facility is Rs. 25,000/Rs. 5 crore. That being said, the amount should not surpass 90% of the overall FD amount. In the case of STDR/e-STDR the loan amount must be repaid within 5 years, whereas TDS/e-TDR is set at 3 years. Interest is charged on the loan amount at a rate that is 1% higher than the SBI FD interest rate.
DICGC Insurance Cover
If a bank defaults, a depositor’s sole coverage is the Deposit Insurance and Credit Guarantee Corporation (DICGC). Every depositor in a bank is covered up to a limit of Rs 5 lakh for both principal and interest amounts according to DICGC guidelines. The DICGC insures all commercial banks in India, including foreign bank branches, local area banks, regional rural banks and co-operative banks.
Free life insurance benefit
Various banks are providing value-added benefits to their depositors in order to draw additional deposits through bank FDs. These bank FDs with added value offer more than just a higher interest rate. Fixed deposits come with guaranteed life insurance without a medical screening with a coverage equal to the FD amount, subject to a period and age restriction, as well as a maximum insured amount. Via alliances and tie-ups with insurance providers, banks provide such value-added bank fixed deposits to the depositors.
Under Section 80C of the Income Tax Act of 1961, a five-year FD scheme can be used to claim an income tax deduction. A 5-year tax-saving fixed deposit (FD) is one that qualifies for a tax benefit under Section 80C of the Income Tax Act of 1961. By investing in a tax-saving fixed deposit account, an investor can seek a maximum deduction of Rs.1.5 lakh per year. The interest income is classified as “Income from Other Sources.” In addition, if the interest earned in a financial year exceeds Rs.40,000 from all accounts kept with the bank, the bank deducts TDS.
Assured returns and regular payout option
Your FD will continue to fetch you the fixed rate of interest even if interest rates adjust later. As previously said, unlike certain investment vehicles like ELSS, NPS, and Mutual Funds bank fixed deposit returns are stable. This assumes that regardless of how interest rates change or how the market does, the returns you get at the time of investment will remain constant. You will get your deposit back at the end of the tenure plus interest that has accrued. By investing in FD you know how much money you’ll get at maturity and what interest rate you’ll get when you invest. You can also choose to get interest paid on a regular basis.
Liquidity and flexibility
When you can quickly turn an investment into money, it is considered as liquid. FDs are a kind of liquid which means that you can borrow your deposit at the time of emergency by paying a small percent of penalty. Child’s education, marriage, home loan repayment and so on are the expenses which you can cover by withdrawing your FD prematurely. On the other side FDs gives you an ease of investment according to your needs. The period of FDs ranges from seven days to ten years. So based on your financial goals you can invest in FD for a certain tenure that suits your personal finance. However, please keep in mind that banks offer interest rates according to your preferred tenure and the type of depositor you are i.e. a non-senior citizen or senior citizen.