5 Great Reasons Fixed Deposits Make Ideal Investments

Fixed deposits clearly carry a lot of weight, across banks and NBFCs. In this article, we highlight some genuinely priceless reasons why it makes absolute sense to invest in FDs (or Fixed deposits).

1. Security

When it comes to fixed deposits, they come with a clear element of security. For instance, the interest amount that is payable on FDs is predetermined and, once done, is assured.

With a lot of other investment options, such as shares, there is no such element of security at all. Returns can be astronomically high but they can also be dramatically low. Also, things can change quite suddenly.

Here, there are no such historic and unpredictable highs and lows to be witnessed. Once your investments have been set at a certain rate of return, you will definitely get that return.

2. Superior Interest Rates

As compared to money left idle in your bank account, FDs offer significantly higher interest rates. Most mainstream banks offer interest rates on fixed deposits which hover around the 7% mark, give or take a little bit. Senior citizens have it even better since they enjoy a marginally higher interest rate, typically about half a percent more than regular interest rates.

When assessed on a cumulative basis (since FDs are usually kept for longer durations), the overall Return on Investment (RoI) from them is quite a bit.

Fixed Deposits
Fixed Deposits clearly offer a wide array of benefits

3. Fixed Deposits Encourage Savings and Financial Discipline

A big advantage of FDs is that they encourage savings within the general populace. A major reason for this is the fact that fixed deposits have a certain predetermined tenure for which they have to be kept. This can range from 3 to 5 years or even longer (yes, there are much shorter FDs too, but most folks opt for longer ones). Also, the option to withdraw prematurely is indeed there but it carries a penalty. As a result, most folds tend to stay invested once they start an FDs.

This also leads to a reasonable amount of financial discipline setting in overtime. It is a big commitment knowing that FDs are to be left untouched unless absolutely required.

4. Flexible Interest Payment Terms

Fixed deposits come with flexible interest payment terms. You have the option to avail interest on a quarterly, half-yearly, or yearly basis. With large sums, you can even opt for the monthly option. This option is available for all sums but it only makes sense to utilise it for large sums.

You also have the option to let things remain as-is on a cumulative basis. This allows the interest to be added to the overall principal and interest amount each time it is due. This way, at the time of maturity of your FD, you would have built up a sizable corpus.

5. Higher Interest Rates on Corporate FDs

Corporate or Company FDs offer even higher interest rates as compared to banks. Some NBFCs or Non-Banking Financial Corporations also offer relatively higher interest rates on FDs as compared to mainstream banks.

At the same time, a note of caution would be that these FDs are not guaranteed. Although most often there is little cause for concern, if the company in question faces serious financial challenges, it may not be in a position to eventually pay the kind of high-interest rate it had committed to. In some really extreme cases, investors have had a hard time even getting their principal back.

So, be cautious when it comes to these high-interest rate FDs. Research the companies and/or NBFCs in question. Only when you find them to be completely sound, perhaps a long precedent of diligently paying investors, should you go ahead and invest in them.

Conclusion

Fixed deposits should definitely form a part of your overall savings and investment portfolio. The proportion is what you need to figure out based on your overall financial trajectory and risk appetite. Since these are low-risk investments, you have room to be a little more daring elsewhere.

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