Encourage your savings habit by opening an FD account

3 minsJanuary 18, 2017

It was a big day for 30-year-old Kaveri Venugopal, a media professional. She was finally heading to her dream holiday in Europe. In the last 10 years, Kaveri put her a large portion of her salary in various Fixed Deposit (FD)Accounts. But Kaveri’s plans did not end there. She intended to reinvest the foreign currency from her trip into another FD and make her money grow.

For any young professional today, nothing is impossible as long as savings begin at an early stage in life. Investing in an FD not only secures your money for a fixed period, but you also earn more thanks to the rate of interest on an FD. But the best part is that you can invest in multiple FDs and fulfill varied financial goals like buying a house, an international vacation or planning a family and future.

Salient features:

• An FD can be created for any duration ranging from a week to 10 years. Interest rates vary from 3.5%-7% based on investment.
• You can choose whether you want your interest payment monthly, annually or when your FD matures.
• Assured returns on an FD are guaranteed, unless you withdraw your FD before time.
• Compared to the savings account interest rates, FD has a higher interest rate.
• This is the best financial back up, in case you need a big amount in an emergency. You can always withdraw your FD.
• Got a bunch of financial goals? You can invest your savings in multiple FDs and rest easy.
• In case you need a loan for anything, your FD comes in handy.

Typically, there are three types of fixed deposits to choose from: Regular FD, Flexi FD & Five year tax saver FD. A Regular FD entails parking your money for a fixed tenure. Upon maturity, you are paid your principal investment with a fixed interest. For a fixed deposit of six months period or more, the interest is calculated every quarter. If a fixed deposit is of less than 6 months period, then interest is calculated at maturity-- as simple interest. It’s important to know that the compounding interest for re-investment is calculated on a quarterly basis.

A flexi FD is a classic combination of savings account with a fixed deposit giving you a dual advantage and flexibility. You not only enjoy the liquidity of a savings account but also avail high interest rates. As the term suggests, a Five year tax saver FD will get you tax deduction of Rs 1.5 lakh a year under Section 80C of the Income Tax Act.

What you should do before making an FD

• If you have a large sum to invest, split it in multiple FDs and earn more!
• You can go for FDs with additional sops like a free accident insurance. But research, before finalizing.
• Compare interest rates on FDs and see what suits you the best.

FDs are one of the safest option of investment where you know your money will grow. Research and read all documents, before opening an FD. Choose wisely.