If you have extra funds and you're looking for somewhere to invest it. It is an excellent accomplishment in the current economic conditions, owing to the financial instability caused by the pandemic. It can be challenging to search for ways to grow your investment, especially when there is so much economic instability.
Taking this ambiguity into consideration, if you're new to the field of financial investing, now is a smart time to look into fixed deposits. One of the safest and most convenient ways to invest your capital is provided by this sort of investment model.
There is no doubt that knowing any opportunity you have available is one of the most stressful aspects of building a financial strategy.
Before going into the fixed deposit investment you can learn the difference between checking & savings accounts by reading this article.
What is a fixed deposit investment?
FDs are one of the most common forms of investing. Inclusion in the investment portfolio is a wise option.
When you invest a set sum over a fixed period, it is called a fixed deposit investment with a fixed deposit interest rate. As all the conditions are fixed, you get a guaranteed increase. You need to settle on a fixed period for the fund, from 7 days to 10 years, before making the initial deposit. This will affect the interest rate and whether or not you wish to deduct the interest received over the term. The longer you keep your savings, the better the return you get.
When to prefer a fixed deposit over other investments?
The thing to understand is that the money is locked up for the length of the preferred period for fixed deposits. You can't access the funds for the entire period of the fd term. You'll have to pay some penalty if you withdraw your FD.
If you have the extra funds, and you know for sure you won't use the money for a certain amount of time, then a fixed deposit is an alternative. You are storing money and knowing that you'll have cash when you need it and still earning interest on it.
If you have saved some money for your child's education that you know you're going to need in three years. You can then invest in a 36 or 35 month period. And maybe, because of the lockdown, your wedding is delayed. You've already saved the cash, so why not place it for the period you've delayed your wedding.
Another example where a fixed deposit may be considered is when you obtain an inheritance. Before you finalise a long term investing plan, you can opt to invest the funds for a short term fixed deposit, using it as a kind of storage area for your money.
This is a perfect way to earn money by investing in short-term deposits with low risk and assured returns. It's more secure than keeping cash.
When shouldn't a fixed deposit be considered?
- When you are unsure about what your financial future might hold, a fixed deposit is not an optimal choice. This fear is prevalent at the moment due to the influence the Coronavirus pandemic has had on several corporations. A savings account will be a safer investment option if you've had a salary cut in the past few months or work in a sector that has undergone cuts.
- Career insecurity or a decline in earnings may generate the need to tap into your savings. In this situation, in a savings portfolio where you can quickly reach, your capital will be better off. You can borrow from your fixed deposit account, but early withdrawal penalties will be levied.
- If you wish to continue contributing to your savings regularly, another example is when a fixed deposit isn't the right choice. For the length of the term selected, you can only make one initial investment.
- You should also bear in mind that it is easy to develop your savings by investing. So, even though a fixed deposit is not for you, it's essential to look at other alternatives for an investment account that are more flexible.
Taxes
It's good to look at the tax ramifications while evaluating various investing strategies. However, even if you do not earn the interest over the fixed investment period, you will need to pay tax on it. Every year, you would be taxed on the interest gained.
For instance, if you have deposited Rs 500 000 at 5.2%, your account will receive Rs 26,000 in interest in the first year. In compliance with the different tax rates, you will be assessed on this amount. When looking at multiple investing opportunities, this is something to remember.
Conclusion:
You can open an FD account with a bank as low as Rs 1000 (vary from bank to bank). Hence, it's always possible to set money together for your future even in these difficult economic times. And a fixed deposit, with low losses and assured returns, is a perfect way to save in the short term.
