Over the years, FDs have gathered more significance over savings account as they promise assured returns with zero risk probability. Plus bank FDs inculcate a habit of savings in individuals. It requires you to deposit a certain amount of money and sit back and earn interest on it. The rate of interest offered in a fixed deposit account is higher than the savings account. So opening an FD is a better way to invest your money instead of simply keeping it in a savings account.
Top reasons why fixed deposits are better than a savings account
Helps earn interest periodically: Simply accumulating a huge amount of money in your savings account would be of no use. A fixed deposit account will put it to better use. Since it’s the safest investment avenue, it can help you earn good amount of interest from time to time, either monthly, annually or at the maturity period (whichever option you choose). The interest you earn from your FD account can be used as an additional income which you can either use for something important or reinvest it for increased savings.
FDs offer higher interest than Savings account: True that! As compared to savings account, an FD would offer higher interest rate. So with the fixed deposit, you can help your money grow with time. Currently, the interest rates offered by top banks on fixed deposits ranges from 6.40% to 6.75% for an investment made for less than a year. Another good thing to note here is that senior citizens are offered 0.5% higher interest rates in FD as compared to the general category of investors. So for example, if a bank offers an interest rate of 6.00% on FD for XYZ term, the same bank will offer 6.05% interest rate on senior citizen FD accounts.
FD as collateral: If you have a poor credit score, and you want to get a loan, you can easily apply for the same by keeping your FD as collateral. In addition to this, you can also use your FD to get a credit card. Some banks charge a comparatively lower interest rate if their credit card application is backed by an FD as collateral.
Tax benefits: According to the present I-T laws, you can claim a deduction of Rs 1.5 Lakh in tax-saving fixed deposits under section 80c of the income tax act 1961. Plus if you have invested in a normal fixed deposit, then some amount of interest earned from it will be liable for tax-deduction. As per the current scenario, if the interest earned from FD is more than Rs 10k, the 10% of it will be deducted by banks as TDS per year. For this, you need to provide your Permanent Account Number (PAN) to the bank.
FDs are regulated by the RBI: Since bank fixed deposit schemes are regulated by the rules laid down by the Reserve Bank of India, credibility is also not a problem here. Also, the FD account is only managed by the investors whom it belongs to, the chances of loss of money is negligible.
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