A majority will attest to opting for fixed deposit schemes if you ask Indians where they park their surplus funds. It is synonymous here with financial maturity of fixed deposit. It will possibly help you to tide over times of economic turmoil if you have such an account.
Fixed deposits are assets where people can store a large amount of their surplus savings and enjoy a significant appreciation of income. They are not market-linked instruments.
Fixed Deposit Types
Although the Indian market has a bevvy of FD account alternatives, these can be divided into two groups. The biggest difference between the two has to do with the frequency of interest payments.
Non-cumulative FDs: Even before maturity, holders in such forms of FDs receive an interest pay-out of the same. Depending on their needs, they can choose the frequency. Every month, quarter or year of investment, interest payments are made.
Cumulative FDs: The interest you receive is reinvested or multiplied in certain forms of fixed deposits. You receive the money from a single payment at maturity, along with the entire interest accumulated.
These tools also offer some other advantages-
- It is easy to earn a comfortable income from it if you park your life savings in a non-cumulative FD after retirement. For people who do not have the luxury of relying on a fat pension, this is a beneficial choice.
- In certain circumstances, FD investors may withdraw their capital investments. Such withdrawals are almost immediate, enabling access in the event of emergencies. In most situations, however, premature withdrawal from fixed deposits warrants penalties.
- For your fixed deposit account, financial institutions are prepared to extend a line of credit to you. Moreover, without meeting any additional eligibility criteria, you can use such loans.
- The loan-to-value is generally between 85 to 90 per cent for such credits. In contrast, no such credit facilities are provided by mutual funds or equity investments.
- A fixed deposit account gets leveraged to obtain a secured credit card. These credit cards come with caps of up to 90 per cent of your limited deposit value, much like a loan. Interest rates are also lower on such cards than on conventional credit cards. Those alternatives can be used by individuals who do not meet the stipulated credit score requirement to opt for unsecured credit card options.
The fixed deposit scheme, however, remain a commonwealth-generating choice in the nation. It is also one of the simplest ways to get your investment portfolio started.
You can do so by opening one through your mobile banking app as this is the best way for those who prefer banking on the go.