Fixed Deposits

Fixed Deposits (FDs) worked for your parents and can work for you as well. Here’s why

Since times immemorial, we have seen our parents investing in fixed deposits. Whenever they received a surplus amount, they invested it in an FD. However, times have changed. Presently, you have plenty of investment options like equity trading, mutual funds, PPF, MIS, bond, etc., where you can invest money and expect quick and decent gains. Fixed deposits may seem old school now. However, when you invest money in the equity market or mutual funds, the returns are not guaranteed. Likewise, when you invest in a secured investment option, such as PPF, the capital remains locked-in until the maturity date.

Fixed deposits are one hundred per cent liquid and provide secured returns, the reason why they are so popular. Read on to discover the reasons why you need to make fixed deposits a vital part of your financial portfolio.

The Top Benefits of Fixed Deposit

Fixed Deposit Helps You Create an Emergency Fund

People often depend on a loan for getting funds during a financial emergency. However, a loan increases your financial liability, as you have to repay the principal along with interest. In contrast, when you invest in an FD offering the best interest rates, you have the liberty to withdraw the funds any time you want. Your investment grows securely and steadily. Hence, you can bank on a fixed deposit whenever you need money during an emergency.

Various Fixed Deposit Options to Choose From

Indian financial institutions offer two types of fixed deposit schemes – cumulative and non-cumulative. Housing Finance FDs generally provide the best interest rates.

In the cumulative scheme, your capital remains locked-in until maturity. You can choose any term between one year and ten years. In the non-cumulative mode, you get money after a fixed interval. The interval might be monthly, quarterly, half-yearly, and annual.

Intelligent investors choose a combination of cumulative and non-cumulative fixed deposit schemes that provide them with high returns and ample liquidity.

Fixed Deposit Offer Tax Benefits

Unlike equity and mutual funds, which are subject to long-term and short-term capital gains tax, the interest income from a fixed deposit is TDS-free up to INR 5,000.

If your interest income is less than INR 5,000 every year, you do not have to pay any portion as TDS from your interest amount. However, if your interest income is above INR 5,000, you will be taxed as per your slab.

Hence, a fixed deposit provides higher tax-adjusted returns than equity or mutual funds.

Avail a Loan Against Fixed Deposit

When you have a fixed deposit, you may not need to apply for a loan. Lenders like PNB Housing offer you the facility to apply for a loan of up to 75% of the investment amount. Hence, you can apply for a loan of INR 75,000 when you possess a PNB Housing FD certificate of INR 1 lakh.

The interest rate of a loan against FD is usually 2% higher than the best rates offered by the financial institution.


Your parents are sensible investors who prefer fixed deposits due to their security. Very few financial instruments in India offer the features and benefits you can get with a fixed deposit. However, if you want to receive the best FD interest rates, you may have to look beyond banks and invest in a housing finance company like PNB Housing Finance that offers CRISIL FAA+ rated FDs with higher interest rates.

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