The urge of spending money to fulfil their dreams among the youth is irresistible as they prefer to live in the present without giving much food for thought about the future situation. However, the problem of lagging in foreseeing the emergencies that may arise in the nearby future can lead to financial distress and more debts. It is thus considered to utilise some of the earnings to save funds for unexpected situations and emergencies.
One can save money by preparing an analytical budget of all the expenses and the sources of income. Along with making a budget, it is essential to stick to the budget if you want to have some surplus funds in your pocket. However, it is critical that keeping surplus funds idle in the savings account is not the solution to save money. You can save money by utilizing the funds in various investment schemes such as Mutual funds, PPF, fixed deposit etc.
What is a fixed deposit?
Fixed deposit is a term deposit wherein you can invest your surplus funds for short term as well as long term. It can range from 7 Days to 10 Years. The interest on the fixed deposits is calculated on a monthly, quarterly or annual basis but the interest is credited at the end of the financial year.
Why should one invest in fixed deposits?
Investing in fixed deposit is a good option as it is one of the safest investment options and has the following benefits.
-Insurance cover of deposits: If you plan to invest in your money in fixed deposits, you can also get your investment insured up to Rs. 1 Lakhs. If you want to invest considerable funds in your FD account and want to get insurance cover, you can do so by splitting into multiple smaller FDs.
– Closing Fd before maturity: Investing in an FD has another positive that you can close your FD account before the maturity period in case of emergency requirement of funds. However, if you close your FD account before maturity, you will be charged a penalty on the interest at the predetermined rate. The principal amount remains unaffected on premature withdrawal.
– Tax savings fixed deposits: You can get tax relaxations up to Rs. 10,000 on the interest earned on fixed deposits. One can also invest in tax-savings FDs wherein they can get tax exemptions up to Rs. 1.5 lakhs in a financial year. However, within the lock-in period of 5 years, you cannot withdraw the funds in tax-saving FDs. Also, you cannot take any loan against Tax-saving FDs.
-Preferential rate for senior citizens: Fixed deposits are an attractive option for senior citizens as they get a higher rate of interest than the original rate of interest. These returns depend on a bank to bank.
-Loan against fixed deposits: Fixed deposits also work as collateral, and one can get a loan against fixed deposits. The rate of interest of these loans is lower than the rate of interest of other loans.
-Get credit card against FD: Various banks also provide the option of getting a credit card issued under the fixed deposits.
Thus, fixed deposits are one of the safest investment options available for short and long tenures. You can get high returns and tax deductions on the FDs.