• Why choose FD During Pandemic

    The Covid-19 pandemic disrupted global and national economic progress as a result of which individual households too suffered financial setbacks. If not job losses, then salary cuts became the norm in many of the private sector companies across the world. In such a scenario, it becomes imperative to optimise your savings. In the backdrop of volatile stock markets, it's also important to be cautious with your investments. With an array of investment and savings instruments to choose from, ranging from mutual funds to stocks and fixed deposits, which one should you choose to safeguard your hard-earned money while also making it grow, especially in unpredictable times like a pandemic?

    The answer might surprise you in its simplicity – the best financial savings product to choose in a pandemic is the good old fixed deposit! Let's look at the reasons why.

    Reasons Why Fixed Deposits are Smart in a Pandemic

    1. Secure and fixed returns: Market-linked financial products such as mutual funds and stocks can fluctuate with regard to returns and be inconsistent in response to changes in the global and national markets. Fixed deposits, on the other hand, will give you fixed returns based on the rate of interest that was prevailing for the tenure that you booked at the time that you had booked it. While FD interest rates do change based on various factors, once the FD has been booked, you will continue to get the same rate of interest for the rest of the FD tenure until maturity.
    2. Ease of liquidity: While Tax Saver FDs have a lock-in period of 5 years, before which it is not permitted to prematurely close and liquidate the FD, for other FD schemes, premature closure is allowed with the condition of a penalty which is a lower rate of interest compared to if it had been allowed to reach maturity.
    3. Loan facility: Unlike some other financial instruments, fixed deposits offer a loan facility of a maximum of 90% of the FD amount. This can be repaid at lower rates of interest than a personal loan and within the remaining tenure of the FD.
    4. Tax planning: Almost all banks offer a Tax Saving Fixed Deposit scheme which offers tax benefits of up to Rs.1.5 lakh in tax deductions under Section 80C of the Income Tax Act. A maximum of Rs.1.5 lakh can be invested in one financial year under this scheme. There is a lock-in period of 5 years during which premature closure is not allowed. However, there are many banks which offer more than 5 years as tenure periods for this scheme. Premature closure is allowed after 5 years.
    5. Start small: It doesn't matter if your hard-earned savings is a lumpsum amount that you consider too small for other investments. Most banks allow an FD to be opened with a relatively smaller amount that could start at Rs.5,000, depending on the bank. If you have been saving money and accumulate more funds, you can then start another FD too.
    6. Ease of opening an FD: With the pandemic came new rules of social engagement, the most important being social distancing. To open an FD, you don't have to worry about going out to the bank in the middle of the pandemic. Most banks have online facilities that facilitate easier opening and management of your FD, whether it is opening a new one or premature closure and renewal of an existing one. You can also easily liquidate your FD or apply for a loan against your FD completely online. This ensures that not only is your money safe, but you and your loved ones are safe as well.
    7. Safekeeping of a lumpsum amount: Everyone knows that if you keep cash in hand or store it at home, there are chances that it will be used up and before you know it, all the money is gone. The best way to safeguard your money against impulse spending is by opening an FD.
    8. Financial planning for long-term goals: Since FDs come with fixed tenures and interest rates, they are very convenient as a planning instrument for your long-term goals. For example, if your goal is to travel to Europe in 5 years, whatever money you have saved towards that goal can be funneled into an FD with a 5-year tenure. This will ensure that your money grows and doesn't just sit idle at home. At the end of the 5-year tenure, you will also have increased your savings by way of the interest that has been accumulating on the FD. This is true for short-term and medium-term goals too since FD tenures stretch from 7 days up to 10 years or more.
    9. Additional interest rate for senior citizens: Almost all leading banks offer senior citizens (above the age of 60) an additional interest of up to 0.50% more than the interest offered to the general public. This is a safe and attractive option for senior citizens to keep their money safe while ensuring it grows steadily too.
    10. Interest payout options: FDs also offer interest payout options ranging from monthly, quarterly, and half-yearly to annually. For those with a substantial lumpsum amount, this is a good option to ensure that you get a steady and regular income throughout your retirement years.
    11. Insurance cover: Each FD that you hold is covered under the Government of India's insurance scheme under the Deposit Insurance and Credit Guarantee Corporation (DICGC) which guarantees up to Rs.5 lakh insurance for each FD that you hold.

    As you can see, in times of volatility and uncertainty like the Covid-19 pandemic, traditional financial products like the fixed deposit have a value and appeal that helps to maintain your peace of mind that your money is safe while also ensuring that you continue to earn an attractive rate of interest on it. This is a smart option whether you are below the age of 60 or a senior citizen, whether you are an individual or other eligible entity such as a Hindu Undivided Family (HUF), company, partnership, firm, club, association, etc.

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