5 Reasons Why Fixed Deposit (FD) is Better Than Any Other Investment

An FD is preferable to mutual funds, equities, and other assets since interest rates are fixed and unaffected by market and economic conditions.

The economy has been unstable and fluctuating around the world since COVID-19, which is not good for market-dependent investment options like equities and mutual funds (MFs). A fixed deposit, however, is preferable to all other alternative investments because it is a reliable investment that offers investors good returns. A fixed deposit also guarantees fixed returns when an account is opened, maintains stability throughout the course of the term despite market changes, and offers higher and fixed returns at maturity.

How does a Fixed Deposit Work?

Saving a part of your earnings is essential for setting up a backup that may be used in times of financial need and for future planning. Investors typically choose a secure investment strategy that increases their capital.

Similarly, a fixed deposit is a wise investment choice that enables you to earn guaranteed returns at maturity while saving a substantial sum for a set duration at low-interest rates. You can put your money in an FD for a flexible term of 7 days to 10 years with banks and NBFCs (Non-Banking Financial Companies). Investors cannot withdraw funds from their FDs while they are still in the term, but in cases of financial emergency, some banks and NBFCs permit early withdrawal with a small penalty. Banks and NBFCs will credit the investor's bank account with the maturity amount (principal plus accrued interest) at maturity.

Benefits of Fixed Deposit

Compared to other market-based investing options, a fixed deposit is a good choice. Here are the top five reasons for choosing a fixed deposit over other investments.

A safe choice

A fixed deposit is secure in comparison to market-dependent investment options like a mutual fund, SIP, and stock. Since a fixed deposit is not based on market expansion, its interest rate does not change over the course of its duration.

The safety provided for the principal amount is another factor that makes an FD preferable compared to all other types of investments. At fixed deposit maturity, banks and NBFCs guarantee to refund the principal and accumulated interest. Fixed deposit accounts from reputable NBFCs are trustworthy and secure as they are rated "IND AA+/Stable" by India Ratings & Research and "[ICRA]AA+ (Stable) by ICRA."

Assured Returns

You can expect guaranteed returns when you book a fixed deposit. You can ensure bigger returns because NBFCs like Shriram are raising FD interest rates to encourage investors to diversify their holdings. Knowing the amount of money, you will receive at maturity due to this advantage makes it easier for you to set financial goals.

Loans Against an FD

The best feature that separates a fixed deposit from other investments is a loan against an FD. You should be aware as an investor that you can loan up to 90% of the value of your fixed deposit. An FD can be used to receive loans at your convenience since loans are a lending tool that helps you in times of financial emergencies.

Flexibility

You can pick between cumulative and non-cumulative fixed deposit schemes when opening a fixed deposit account based on your preferred fixed deposit plan. At the end of your investment term, you will be able to withdraw funds or receive the maturity amount in a cumulative fixed deposit. You can get dividends from non-cumulative fixed deposits on a monthly, quarterly, half-yearly, or annual basis. An additional benefit of FDs over other investments is that you can modify the tenure and FD amount to fit your needs and financial objectives.

Premature Withdrawal

A fixed deposit is the best investment choice available in terms of flexibility because you can withdraw money from it or break it at any time in case of emergencies. However, there is a fee for early withdrawal, and it varies depending on which banks and NBFCs you choose. A fixed deposit's early withdrawal procedure is simple. You can always take out a loan against your FD because early withdrawal has costs associated with it.

Important points about FD you should know

• In today's investing market, a fixed deposit (FD) is the most reliable type of investment.

• An FD is preferable to mutual funds, equities, and other assets since interest rates are fixed and unaffected by market and economic conditions.

• The best feature that separates a fixed deposit from other investments is a loan against an FD. You should be aware as an investor that you can loan up to 90% of the value of your fixed deposit.