6 advantages of an Auto Fixed Deposit

Fixed Deposit (FD) is one of the most popular savings instruments in India. Consumers consider it to be a secure investment option that earns guaranteed returns. You can take advantage of the Auto Fixed Deposit, an innovation on the traditional FD. This option comes with multiple benefits. But first, let us explore what an Auto Fixed Deposit is.

 

Auto Fixed Deposit explained

An Auto Fixed Deposit is a flexible version of an FD. This is a debt instrument like an FD but with a difference. 

In an FD, you must invest a lump sum for a fixed tenure. The FD interest rate is fixed and the returns are guaranteed. 

The mechanism for Auto Fixed Deposit slightly differs. You link your Savings Account to an FD. Whenever the account balance exceeds a specified amount, the excess funds are transferred to the FD. This action enables the excess funds to earn the FD interest rate. 

6 advantages of the Auto Fixed Deposit 

Higher returns

Many Savings Account holders end up keeping large sums of unused funds in the account. No doubt, having some amount of money in a Savings Account can be used in case of emergency. However, it is more beneficial if the excess funds are transferred into an Auto Fixed Deposit, rather than simply lying in the Savings Account. The funds will draw a much higher interest and increase your savings rate. 

Helps build a savings habit

 

As a Savings Account holder, you can reap the benefits of automation to initiate a savings habit. You do not need to manually transfer excess funds into an Auto Fixed Deposit. This transaction is automated as soon as the savings account balance rises above the pre-determined account.

For instance, say you fix the upper limit at ₹30,000. When the balance rises above this amount, the excess funds get automatically transferred. 

Also Read :Know the different types of Fixed Deposits

Zero-risk investment 

There are zero risks associated with a flexible Fixed Deposit account. The returns are guaranteed. This is because the performance of this instrument is not linked to the performance of the market. Hence, there is no scope for financial losses.

Automatic renewal

You can leverage the automatic renewal feature to continue with your deposit account. This step ensures that your savings habit is not interrupted. There is no need for opening a new account or manual reinvestment.

Seamless liquidation process 

This kind of deposit can be liquidated quickly in case a deposit requires funds in an emergency. Hence, the Auto Fixed Deposit can also double up as a secure place to park your emergency funds. In case of events such as job losses or medical emergencies, the funds can be immediately withdrawn and put to use. 

Also Read :What is Fixed Deposit (FD) ? Advantages of a Fixed Deposit Account

Brief tenure

You can enjoy the benefit of high interest rates with even a brief tenure of 6 months. On the other hand, a regular FD offers a higher interest rate only for higher tenures.

Summary of Auto Fixed Deposits 

• You need not invest a lump sum to open an Auto Fixed Deposit. 
• Excess funds from the Savings Account are automatically deducted when the balance exceeds the upper cap.  
• You can avail of a secure investment opportunity. 
• The interest rate of an Auto Fixed Deposit is much higher than what applies to a Savings Account. 
• Withdrawals can be made as and when you need funds. However, it is advisable not to keep withdrawing funds to reap the full benefit. 
• There is a penalty for premature withdrawal of funds before six months of opening the account. 

Also Read :Reasons Why Fixed Deposits Are Favored by the Indian Middle Class

The takeaway

You may not always be in a position to deposit a lump sum to build savings. As an Axis Bank Savings Account holder, you can now open an Auto Fixed Deposit and boost your savings rate. This facility comes with a six-month tenure and an auto renewal facility, among other benefits. Auto Fixed Deposits are best suited for consumers who do not wish to take major risks, or manually do investments each month. This solution ensures that savings are accelerated without much effort or risk. 

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.