How Fixed Deposit can help in Saving Money

• Insurance of deposits up to Rs.1 lakhs

If you invest in a fixed deposit, you will be offered insurance of Rs 1 lakhs of the amount that they invest in a fixed deposit. If you want to invest a huge amount in a fixed deposit, you can do the same by splitting up into FDs with smaller amounts and avail yourself of the insurance for every deposit.

• You can close FDs before maturity

Fixed deposit enables you to earn a higher rate of interest than regular savings account as banks use your funds as part of their cash flow. If you want to withdraw the amount before the agreed maturity period, banks will charge you a penalty on your fixed deposit. The principal amount will remain unaffected, but your bank will deduct it on the decided FD interest rate.

In case of an emergency, you can opt to close your fixed deposit before maturity or fulfill your requirement by availing of a loan against FD. You can avail of a loan against your fixed deposit at a lower rate of interest as the bank has your fixed deposit as collateral.

• Tax saving Fixed Deposits

As per Income Tax Act, 1961 interest earning on your fixed deposit is exempted up to Rs 10000. But, if you want to invest your funds for a longer tenure and do not want to end up paying taxes, you can choose to invest in a tax-saving fixed deposit. In a tax saver FD, the principal amount you opt to invest is exempted from taxation. Under these fixed deposits, your money is locked in for a period of 5 years. Also, you will not be able to break your fixed deposit before maturity and cannot avail of loans or credit cards on these deposits as well.

• Preferential interest rates for Senior Citizen

Banks and financial institutions offer preferential FD interest rates for senior citizens. Senior citizens are offered higher interest rates on FD than regular individuals. Usually, banks and financial institutions provide 0.50% more than the bank FD rates for regular individuals. But, the fixed deposit interest rate for senior citizens varies from one bank to another.

• Loan against Fixed Deposits

This is one of the most important benefits of holding a fixed deposit. Any individual investing in a fixed deposit can easily get a loan against FD. Your bank or financial institution will issue a loan against your term deposit using it as collateral. Also, the interest rate for the loan taken against your fixed deposit will be much less than traditional loans.

How do you save money by investing in fixed deposits?

Investing your surplus funds not only helps you get returns but also assists you in saving your money.

• Fixed Deposit helps you to save money for a longer tenure as it does not allow you to withdraw your money before maturity
• With FD, you can get a higher rate of interest than a regular savings account
• You can also avail of a loan against your fixed deposit up to 70-90% amount of your fixed deposit
• You will get FD interest at maturity, monthly, quarterly, or annually
• Against your fixed deposits, you can also get a credit card from the bank as most of the banks and financial institutions provide a credit against 70-90% of the FD amount
• The interest earned below Rs.10,000 comes with no tax obligations
• Fixed deposits up to Rs.1.5 lakhs for 5 years are eligible for tax deductions under Section 80C of the Income Tax Act, 1961

Banks and financial institutions do allow you to withdraw money before maturity, but premature withdrawals attract penalty. So, you can save a lot of money by opening a fixed deposit and keeping it till the maturity date.