What Are Fixed Deposit & How to Save Efficiently With Them

A fixed deposit is the safest and most popular method adopted for long term investment. The most exciting and tempting aspect of savings through fixed deposit is that there are zero risks of losing money. In the case of a fixed deposit, a lump sum amount is deposited in a bank or any financial institution for a specific period to earn a high fixed deposit interest rate . It can be considered as an investment to grow money over time. One can save efficiently through a fixed deposit in the following ways.

Saving a lump sum amount

The first step to start a fixed deposit is to keep the right amount. The higher the principal amount, the higher is the interest earned. Thus, it is essential to save penny by penny to get to a round sum. It may take a longer time, but it is worth it. The higher the amount to be fixed, the higher is the return.

Looking out for higher interest rates

As there are several banks, the interest rate vary from bank to bank. When one is planning to invest in a fixed deposit, it is advisable to compare the interest rates of fixed deposits in different banks. Opting for a bank that provides a higher percentage of interest is the wisest decision you can make.

Laddering

Laddering is the policy of investing a handsome amount into multiple fixed deposits. Investing in this manner enhances the returns. For instance, an individual having Rs.2 lakhs may invest in two separate fixed deposits: Rs. 1 lakh set deposit for one year and Rs.1 lakh fixed deposit for five years. This laddering ensures a higher return than investing two lakhs for a year. Laddering also reduces the risk of premature withdrawal and also provides liquidity.

 Extending the tenure of fixed deposit

Extending the mandate of a fixed deposit enhances the returns. If one has made a fixed deposit for a year, after a year, the principal amount summed up with interest earned in the allotted time becomes the new principal for the next tenure. Thus the interest earned in the subsequent tenure is calculated on the original principal amount.

Avoid premature withdrawal

When you opt for a fixed deposit, the tenure is to be selected, and it is expected that one would not withdraw the amount before the allotted period. If the amount is removed before the completion of the period, it is known as premature withdrawal. In case of an early departure, a penalty may be levied. Thus, it won’t serve the purpose.

Save on Taxes 

As per Section 80 C of Income-tax, you can enjoy tax redemption on different forms of fixed deposit investment plans. Get a fixed deposit investment upto a maximum of Rs100,000 upto five years. We can also file tax deduction in our income tax returns portfolio online. Save money and enjoy tax-free investment. 

Bonus Addition :

There is some degree of banks also an option for a loan against a fixed deposit. Also, online investments come with a personal accidental cover like insurance aids. 

Fixed deposits are an excellent long-term investment tool that fetches a good return without risk of losing money as in mutual funds, shares, and stocks. It is a flexible mode of saving money efficiently. However, one must take care of laddering and avoid premature withdrawal to ensure maximum returns. A fixed deposit serves as the most simple and easy way, to begin with saving efficiently. Moreover, fixed deposits are easily withdrawable and instill the habit of savings in an individual. When it comes to saving through fixed deposits, it is advisable to opt for multiple fixed deposits with different providers. The different interest rates of varying providers ensure a higher return than investing the whole amount in a single fixed deposit with an only provider.

In today’s fast life, we are all moving at a rapid pace. We all are looking for stability. However, we are not able to experience certainty. A fixed deposit is a necessity more than just an investment plan. Once you open a bank account, there is an option for opening a fixed deposit account alongside. All the leading banks and financial consultants advise to open an FD account along with a savings account. Most of the time, we need to invest in fear of managing it. Thanks to the new age of Digitization by which we can secure our investments through an online medium. Having an online account offers a plethora of benefits. You don’t need to go to the bank; preferably, all the transactions can be carried online sitting at home. Alongside this, there is also an associated financial advisor who manages your listing. 

Therefore, Kick start your investment in an FD soon — hassle-free and easy process. Anyone who is looking for a risk-free option, fixed deposit is the proven best solution. 

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