13 Benefits of Fixed Deposits | 1 Extra FD Benefit in 2024

Do not index

Fixed deposits - the perfect investment for investors who want to build wealth slowly and steadily without a lot of stress.

However, the slow and steady wealth creation is not FD’s only benefit.

In this article, we look at 13 benefits that FDs offer to investors.

Let’s start with the first FD benefit that was absent for a while but has made a comeback in 2024.

#1 Interest Rates as High as 9% in 2024

If you are shocked, we don’t blame you. FD rates were in the 4-5-6% range for most of the last 10 years and a 9% interest rate seemed like a farfetched dream during these periods.

But it’s 2024 and high rates on FDs have made a roaring comeback.

Read: Our analysis on why FD rates are high in 2024 →

With savings bank account rates lagging at 3-4% and the average yield on debt mutual funds at ~7.4%, FDs are likely to deliver much higher returns in 2024.

Invest in High Rate FDs on Altcase →

#2 Fixed Returns And Peace Of Mind

FDs offer fixed returns. When you invest, you know exactly what you are going to get (interest and return of principal) and when.

The emotional connect most of India has with FDs means when you invest in an FD you are at peace.

Getting these two benefits in any other single investment instrument is close to impossible.

#3 FDs Are Insured Up To Rs. 5 Lakh

We know FDs provide fixed returns and are considered to be very safe. But the DICGC insurance is a cherry on top.

DICGC → Deposit Insurance and Credit Guarantee Corporation

🔰

Deposits up to Rs. 5 lakh per account are insured by the DICGC, a subsidiary of the Reserve Bank of India (RBI). This insurance makes the already safe FDs safer.

Note: DICGC insures only bank FDs and not NBFC FDs.

#4 FDs Can Help You Save Rs. 45,000 in Tax

✅

5-year fixed deposits are eligible instruments under the section 80C of the Income Tax Act.

Section 80C says you can invest in one or a mix of eligible instruments and lower your taxable income by up to Rs. 1,50,000. In other words, make some investments and pay Rs. 45,000 less tax if you are in the 30% tax bracket.

Among the 80C eligible instruments that offer fixed returns, fixed deposits have the lowest lock-in period of 5 years (vs. 15 years for PPF and until retirement for PF).

Given that FD rates are high in 2024, it would make sense to invest in eligible FDs to lower your tax liability in FY25 while locking in high rates.

Note 1: Only certain 5-year fixed deposits can help you save tax, not all.

Note 2: You get section 80C deductions only if you are choosing the old tax regime.

#5 FDs are Flexible

Just because FDs are ‘fixed’ doesn’t mean they are not flexible.

FDs offer flexibility in their tenures which range from 7 days to 10 years.

You can also pick the interest payout frequency which ranges from fortnightly to yearly.

If you don’t want interest payouts then choosing the cumulative option can help you reinvest the interest back into the FD and generate higher returns through compounding.

✅

Pick the right tenure and interest payout frequency that aligns with your financial needs.

#6 Reliable Income Generation

➡️

Fixed deposits are perfect fit for investors seeking regular and reliable income from their investments.

They offer the flexibility to choose your interest payout frequency and a predictable income flow.

Isn’t this the best way to manage monthly expenses or plan for future needs?

#7 Get Your Money Back Any Time You Want It

There may be situations where you need access to your fixed deposit before its maturity.

Most FDs allow premature withdrawal with a small penalty (lower interest rates by 1-2%; no penalty on the principal). Thus, you can access your money in FDs any time without losing its value.

Note: NBFC FDs tend to have mandatory lock-ins of 3 months during which withdrawal is not allowed.

#8 Loans Against FDs Are Affordable

If you need funds, you don’t have to break your FD. You can borrow against your fixed deposit corpus. You can get a loan of up to 90-95% of the fixed deposit value.

Say you have an FD of Rs 10,00,000, you can take a loan against it for up to Rs. 9,50,000. This way you’ll get money to use for your needs and the FD will keep growing in the background.

The best part about loans against FDs is that the loan rates are much lower than personal loans or credit lines making the whole arrangement affordable for you.

As of May 2024, SBI charges a 1% higher interest rate than the FD you are borrowing against. So, if you borrow against an FD that promises to pay an 8% interest rate, SBI will charge you a 9% interest rate for the loan.

#9 Senior Citizens Get Extra FD Benefits

➡️

Benefit 1: Higher interest rates Most banks and NBFCs (Non-Banking Financial Institutions) offer higher interest rates on FDs to senior citizens.

Typically, senior citizen FD rates are 0.25-0.50% higher than regular FD rates.

➡️

Benefit 2: Tax breaks Under Section 80TTB, interest income up to Rs. 50,000 earned from all deposits is exempted for senior citizens.

Note: The interest earned can be from savings bank accounts, bank fixed deposits, recurring deposits, post office deposits, etc.

Also, any interest income exceeding this limit is subject to taxation based on the investor's applicable income tax slab.

#10 Fixed Deposits Offer Sweep-in Facility

The FD sweep-in facility lets you automatically transfer any excess funds in your savings account to a fixed deposit. This way the excess money earns a higher interest rate in the FD.

Illustration:

Suppose you activate the sweep-in facility so that amounts in excess of Rs. 50,000 in your savings account gets automatically deposited to FDs.

Now, you have Rs. 40,000 in your savings account and receive an inflow of Rs. 20,000. The sweep-in facility will get triggered and automatically invest Rs. 10,000 in FD so that your savings account balance doesn’t exceed Rs. 50,000.

#11 FDs Make Your Investment Portfolio Stable

If your investment portfolio is heavily on stocks/equity mutual funds, some diversification through fixed-income investments can lower the risk of your portfolio.

FD is a great fixed income investment candidate that can help you make your investment portfolio stable. This is especially true in 2024 as FD rates are among the highest we have seen in the last 8-10 years. Invest in High Rate FDs on Altcase →

#12 FDs are Perfect for Parking Your Emergency Fund

FDs are safe investments that offer fixed returns. FDs can be quickly and easily converted into cash without loss of value.

These features make FDs the perfect investment vehicle to park your emergency fund.

We have a 4 article series explaining everything you need to know and build your emergency fund:

→ What is an Emergency Fund?

→ How Much Should You Have in Your Emergency Fund?

→ Where to Park Your Emergency Fund?

→ How to Create Your Emergency Fund?

#13 Effortless Investing

The traditional way to invest in FDs is going to your bank’s branch and filling up a few forms. The modern way is to use mobile banking.

But the smart way is to invest in FDs effortlessly on Altcase.

On Altcase, you will find only high interest FDs from leading NBFCs and banks that we have carefully curated. FDs on Altcase give you returns as high as 9%.

We promise it will be the best and most rewarding investment journey you have ever experienced.

Download the Altcase App →

Happy Investing!

13 Benefits of FDs | 1 Extra Benefit in 2024