Fixed deposits can help you generate stable returns

Fixed deposits can help you generate stable returns

In FY17, Indians invested nearly Rs 3.5 lakh crore in bank fixed deposits. In all, Indians have put in Rs 40 lakh crore in their favourite saving instrument - the fixed deposit or FD. Interest rates can rise or fall, but that does not curb the 'interest' in this traditional avenue, preferred by old and new generations. The biggest advantages of a fixed deposit are the safety, the guaranteed interest rate and then comes the liquidity and flexibility features. If you are planning to live off a fixed sum of money, a collection of fixed deposits when used smartly can help you generate a stable return for years. Let us understand them better.

Most of us spend the best part of their lives in earning money. After spending, what is left is saved. This is where the first fixed deposit enters lives. As you know, FDs are probably the only risk-free investment both from short and long-term perspectives. Since the fixed deposit interest rates, at present 6-8%, are not driven the market, you get an assured sum of money at the end of the maturity period. This is why for risk-averse investors fixed deposits help build a stream of dependable income. If you know the rate of interest offered by the fixed deposit, you can use a fixed deposit calculator to know the maturity amount. 

Bank fixed deposits do have a good or bad time for investment, unlike stock market. Since the fixed deposit interest rates or returns are known beforehand, it is always perfect time to open a fixed deposit. Decide the amount you wish to park in the bank FD and then lock down this principal amount for a specified tenure. You also have various tenures to choose from. For instance, IDFC Bank offers over 15 different tenures from as low as 7 days to 10 years. Minimum tenure of an NRE fixed deposit is 365 days. If you want to invest more than Rs 1 crore in FDs, it may be worthwhile to first talk to the branch manager to get some special rates.

On maturity, you get paid principal plus interest (cumulative fixed deposit). If you want, you can even receive periodic disbursal of interest amounts (non-cumulative fixed deposit). There is an incentive for senior citizens and that is an additional spread of 0.50% over the above rate for domestic deposits. Do bear in mind that rates up to 180 days are on simple interest basis, while interest on tenure above 180 days is payable/compounded on a quarterly basis in case of some banks. Besides normal bank FDs, there are tax-saving FD options. In this fixed deposit, your investment can get tax deduction under section 80-C of the Income Tax Act, 1961. Deposit holder can claim a deduction of a maximum of Rs 1.5 lakh by investing in tax saver fixed deposits. There is a lock-in period of 5 years.

The only argument against any fixed deposit is the rate of inflation. The argument is fixed deposit interest rates are lower than risky investments, and hence are not the best way to beat inflation. However, over the last few months and years, we have seen price rise being controlled. In fact, today inflation is at 4.5-4.6% in India and a bank fixed deposit offers 6-8%. Hence, even after adjusting for inflation, bank fixed deposits are giving positive returns and that too guaranteed. 

In case you love investing in bank FDs, do not concentrate all your investments in a single bank. Try to keep money in new banks like IDFC Bank and enjoy seamless service experience.  

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