Fixed deposit is the safest and high yield interest generating instrument carrying a fixed tenure between 7 days to 10 years (lock-in period) with a fixed interest rate which the investors will get to invest their surplus capital with banks or NBFCs. Unlike other instruments, this is the riskless instrument and so trusted by the majority of the people in since years. Hence, it is necessary to know the ways in which FD interest rate helps us for financial planning.
The ways in which FD interest rate would help us are as follows:
- Riskless return:
From many decades, fixed deposit is considered as the best option in the volatile market conditions for hedging the debt/equity instruments. It gives regular interest pay-out in a particular period and an assured amount on maturity. Investors who have surplus funds and who are defensive in financial planning have maximum demand for this instrument.
- Various deductions under income tax :
Income tax department gives a deduction up to Rs. 10,000 on interest income under section 80 TTA and a deduction up to Rs. 1, 50,000 under section 80 C on invested amount, which is very useful for the tax purpose. This deduction attracts investors to invest more funds in fixed deposits and take maximum tax benefit by filing the income tax return on time.
- Regular interest pay-out:
Regular interest is paid after every month/quarter to the investor, which maintains the liquidity by decreasing the burden of locked in funds. Moreover, it also creates high confidence among investors in the fluctuating market conditions. Whereas you may also choose the interest pay-out with the maturity of the investment for additional interest since the interest is compounded every second.
FD interest rates may vary from bank to bank; the highest interest rate on FD can be around 7.5% - 8.25 %. For this, a person may require a separate FD account which will distinguish it from other accounts in the bank.
Current FD interest rate in the nationalized banks is between 5.75% to 6.85% depending on the tenure and some additional per cent for senior citizens. The leading private banks offer a better interest rate on FD - around 7.5% to 8.25% depending on the plan and duration you choose.
If you want to play safe, without any financial risk and have medium to long term goal in your mind, investing your money in fixed deposits with a trusted bank can be your primary money management strategy.
It is advisable to go for fixed deposit if you want to play safe and have medium to long term goal in your mind.