Indians and their love for FDs is an unbreakable bond we have all seen. The moment you must have started earning a good amount, you must have heard your parents telling you to open a fixed deposit account. But why do Indians prefer fixed deposits over any other investment options? That’s a mystery we are here to solve.
It’s not any random reason why Indians prefer FDs. Apart from being one of the least risky investment options, several other reasons make this investment vessel a great option for individuals looking for a long-term investment plan. Today, we will unveil seven reasons why you consider FDs a worthy investment option.
Why Do Indians Prefer Fixed Deposits?
- Safety of Capital
The first reason why Indians prefer fixed deposits is because of the capital safety they have to offer. Fixed deposits are typically insured by government-backed deposit insurance schemes. This insurance ensures that even if the bank faces financial difficulties or goes bankrupt, the deposited amount up to the insured limit will be repaid to you. Fixed deposits are also considered lower-risk investment options due to their predictable and guaranteed returns.
- Flexibility
Another reason why Indians prefer to invest in fixed deposits is because of the immense flexibility it has to offer. Starting from a short-term tenure of seven days and lasting to a long-term duration of ten years, an FD account comes with great flexibility. Further, you can even create multiple fixed deposit accounts of different amounts and tenures simultaneously. This only allows you further to explore the flexibility of FDs.
- Low Initial
Fixed deposits are great if you want to get into the habit of saving but don’t have much money. One of the key benefits of a fixed deposit, and the reason why Indians prefer FDs, is the low initial investment requirement, making it an attractive option for individuals looking to invest their savings securely and conservatively. In India, you can start an FD with money as low as ₹500. Unlike some other investment options that might demand a significant upfront sum, fixed deposits can often be initiated with a relatively modest amount.
- Monthly Interest Payouts
The interest paid on a fixed deposit account is relatively higher than a regular savings account. Further, this is also one of the reasons why Indians prefer to invest in fixed deposits, as the money invested in the account for a predetermined period is subject to attracting interest rates.
During the entire tenure of the FD, the bank calculates the interest that the investment will accrue based on the fixed interest rate and the principal amount. When you choose the option of monthly interest payouts, the bank disburses a portion of the calculated interest to you monthly. This can act as an alternate source of income every month.
- Reasonably Liquid
While the funds in your fixed deposit account are indeed tied up for the agreed-upon period, the certainty of knowing when the fixed deposit will mature provides a level of planning and predictability. This can be especially useful when you have specific financial goals in mind, such as purchasing a property, funding education, or meeting long-term savings targets. The fixed maturity date allows you to anticipate and prepare for the release of funds, making it an attractive option for people who can plan their finances around the FD’s maturity.
- Senior Citizen Benefits
Lastly, Indians prefer investing in fixed deposits as these accounts come with plenty of perks for senior citizens. There’s the security of a guaranteed return, and along with that, there are added advantages where senior citizens get an increased interest rate on their FD account.
Is FD the Best Investment Option?
While most Indians prefer FDs, it’s not always the right choice for everyone since everyone has different financial goals and needs in mind. Here are some reasons that might justify why you shouldn’t be investing in an FD:
- Low Return Rate
Compared to equities or mutual funds, FDs offer lower return rates. So, when you want to build a sustainable long-term investment corpus, you need to invest more.
- Low Inflation Rate
Return on FDs is barely 1% to 1.5% higher than the inflation rate, meaning your money will grow slowly.
- Taxation
The interest you earn on your fixed deposit investments is taxable. There is a 10% tax on FD returns for individuals with a PAN card, and someone without a PAN card has to face a 20% taxation on their returns.
Author bio:
Naina Rajgopalan has a thing for numbers and a deep fascination to learn about all things finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her. Being a part of the content team at Freo Save, a digital savings account that offers up to 7% interest rate on savings along with benefits such as insurance on balance, safe & secure banking, and so on. Naina stays updated with the latest of what happens in the banking and fintech industries. She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.
