bank deposit benefits
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FDs provide investors with a higher rate of interest than a regular savings account and have many other advantages which make them a preferable option for investment.
Investment in fixed deposits gives you an assured return.
The returns are generally over and above the returns offered by a savings bank account.
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Encourages Savings
“Do not save what is left after spending, but spend what is left after saving.” – Warren Buffet. This stresses the importance of savings. A fixed deposit account holder will inadvertently save money, since FDs require the holder to invest a lumpsum amount for a fixed period of time. Premature withdrawals attract penalties.
For example, a FD of Rs. 1,00,000 invested for 3 years at 9% interest rate, if withdrawn after a year, will get interest at the rate applicable at that time, which will be lesser than 9%. The loss of interest becomes the penalty that you pay for a premature withdrawal.
Tax Benefits
Tax-saver FD attracts tax benefits under section 80C of the Income Tax Act, 1961. It falls under the Exempt-Tax-Exempt category. Although the interest earned on such FDs is taxable, you can claim a deduction of a maximum of Rs. 1,50,000 for the amount invested.
Safe Investment
FDs are risk free investments. Unlike other investment tools, FDs are not market-driven. You get an assured sum of money at the end of the maturity period. This is thus an attractive investment for risk-averse investors.
Higher Rate of Interest
The rate of interest on FDs is higher than that on saving deposits. For example, Axis Bank offers 4% interest on saving bank accounts, whereas the minimum interest that a FD attracts is 5.5%.
Liquidity
An asset is liquid when you can easily convert it into cash. FDs are liquid. Although the holder will be charged a penalty, FDs can be withdrawn as and when needed. Thus, you always have a certain sum of money to bank on.
Flexibility
The tenure of FDs varies from 7 days to 10 years. You can invest in FDs for a tenure that matches your business or personal needs. Suppose, you plan to get your child in a particular school in another 5 years, you can opt for a tax saving FD as it has a lock-in period of 5 years.
It is said, when you don’t work, your savings will work for you. Act wise by investing in FDs and make a smart financial move by reducing your tax liabilities.
“Do not save what is left after spending, but spend what is left after saving.” – Warren Buffet. This stresses the importance of savings. A fixed deposit account holder will inadvertently save money, since FDs require the holder to invest a lumpsum amount for a fixed period of time. Premature withdrawals attract penalties.
For example, a FD of Rs. 1,00,000 invested for 3 years at 9% interest rate, if withdrawn after a year, will get interest at the rate applicable at that time, which will be lesser than 9%. The loss of interest becomes the penalty that you pay for a premature withdrawal.
Tax Benefits
Tax-saver FD attracts tax benefits under section 80C of the Income Tax Act, 1961. It falls under the Exempt-Tax-Exempt category. Although the interest earned on such FDs is taxable, you can claim a deduction of a maximum of Rs. 1,50,000 for the amount invested.
Safe Investment
FDs are risk free investments. Unlike other investment tools, FDs are not market-driven. You get an assured sum of money at the end of the maturity period. This is thus an attractive investment for risk-averse investors.
Higher Rate of Interest
The rate of interest on FDs is higher than that on saving deposits. For example, Axis Bank offers 4% interest on saving bank accounts, whereas the minimum interest that a FD attracts is 5.5%.
Liquidity
An asset is liquid when you can easily convert it into cash. FDs are liquid. Although the holder will be charged a penalty, FDs can be withdrawn as and when needed. Thus, you always have a certain sum of money to bank on.
Flexibility
The tenure of FDs varies from 7 days to 10 years. You can invest in FDs for a tenure that matches your business or personal needs. Suppose, you plan to get your child in a particular school in another 5 years, you can opt for a tax saving FD as it has a lock-in period of 5 years.
It is said, when you don’t work, your savings will work for you. Act wise by investing in FDs and make a smart financial move by reducing your tax liabilities.
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