It is essential to save money. Not only because you may need it in an emergency but for your old age. Past the age of 65, you are not going to receive a salary and need to pay for your expenses.
The only way to do this is through investment. But invest in what? The safest route is to put the money in a fixed deposit.
Fixed deposit offers an assured percent of income and may stretch from a week to 10 years. You can open a fixed deposit account at any bank with minimum paperwork.
The interest can be taken home by you, or you may choose to add it back to the principal.
There are many reasons why a fixed deposit is an excellent investment.
1. It offers security
Share markets do offer you significant returns of up to 20%. But there is no safety. What goes up may come down. All the wealth that you accumulated for years may be wiped out in the next recession.
This is really risky, and many, especially those past the age of 45, do not have this level of risk appetite. For them, a fixed deposit is an ideal avenue of investment.
The neighbourhood bank offers you all types of fixed deposit with flexible tenures. Most of us live within a few miles of a bank branch. If you live in a city, you must have several close to your home. Just walk into one and start a fixed deposit account. You would be given a passbook that will reflect your investment and returns.
Any fixed deposit in a public sector bank is guaranteed by the government. The government has not allowed any bank to fail. It is as good as buying sovereign debt. No more do you have to worry about the state of the economy. If there is a shortfall, the government will in some way allow you to recoup your investment.
4. Allows loans
This is a considerable facility offered by a fixed deposit. You could easily take a loan against the collateral. The bank already has all the information, and unlike any other security such as a house or jewellery does not require to sell an FD to recover a debt.
The fixed deposit plans come in a variety of flexible tenures. From a month to many years – there is a variety of time periods to select from. Lock in your money for a short period or a decade. The choice is yours.
6. High growth
The power of compounding means that every year, your interest will be added back to the principal. The next year you would receive interest on both the principal and the interest of this year. This power of compounding allows an FD to multiply enormously.
It is due to these reasons that fixed deposits are the most popular form of investment in India. Easy to set up, easy to access in case of emergency, security, and safety, it is ideal in every way.
No other investment comes close to providing a fraction of these conveniences.