Why Choose a Fixed Deposit for Future Planning?


Modern investing has made it possible to step into a highly digitised arena. You are spoilt for choice, and this can make it overwhelming to know where to park your funds. Thankfully, you can always invest your money in low-risk investment schemes, such as fixed deposits.


Fixed deposits are a lucrative investment choice for Indians for many reasons. Since the pandemic, the RBI has hiked the repo rate several times, making the FD a very attractive choice. Therefore, if you're looking to invest for the future, it may be smart to consider investing in fixed deposits.

To know why the fixed deposit is a smart choice for future planning and how you can maximise your returns, read on

Why Choose Fixed Deposits?

The fixed deposit has always been the go-to choice of the risk-averse investor. This is because it offers secured returns, and is virtually risk-free. Both these traits are vital for any investment meant for future objectives.

Read on for a clearer picture of the benefits FD offer for future planning.

1. Stable, secured returns all through the tenor

Fixed deposits have a steady and regular return on investment. If you are looking to park your funds in a low-risk plan, then FD is the right option for you. Moreover, FD returns are unaffected by market volatility, which is an important reason why it is a good choice.

When investing toward a future goal, you need to pick investments that you can rely on. Picking overly risky options could result in a loss, causing you a great deal of stress down the line. With fixed deposits, you don’t face such issues because you can accurately know your returns from day one.

The rate is fixed from the start, and it does not change at all. Even if the market undergoes a downtrend, your investment is safe and your returns are guaranteed at maturity. Even in dire situations where the FD issuer faces bankruptcy, your money is still safe.

This is because the Deposit Insurance and Credit Guarantee Corporation (DICGC) offers coverage of up to ₹5 Lakhs, for both principal and interest earned. Do note that this cover is only available to bank fixed deposits.

2. High liquidity with minimal lock-in periods

Fixed deposits are profitable investment schemes that offer you the benefit of liquidity. This is an important factor when planning for your future, as emergencies can crop up. In such cases, you should be able to access your corpus, without any issues.

FDs offer this privilege, as you can prematurely withdraw your investment, as needed. However, issuers will charge a fee for offering this service, while some may term it as a premature withdrawal penalty. Here, you may end up paying from your earnings to get the funds you initially invested.

Do note that some issuers may have a lock-in period of a few months, during which you are not permitted to withdraw your funds. You can check these terms before investing, and pick the issuer accordingly.

In addition to that, it is almost important to note that tax-saved FDs have a minimum lock-in period of 5 years. This is only applicable to this type of FD, and you should opt to go this route only if you are certain that you won’t need the principal amount during the tenor.

3. Flexible and customisable tenor and payout options

Fixed deposits offer you a wide range of tenor options from 7 days to 10 years. You also enjoy the benefit of flexibility, which is crucial when investing toward your future. With a tenor that can span up to a decade, you have the option to optimise your investment from day one.

Depending on your financial standing and your target with your investment, you can find a suitable tenor. In fact, the FD interest rates calculator or the FD calculator on issuer websites makes this process quite simple.

All you have to do is enter the amount you wish to invest, the interest rate offered, and the tenor. The FD calculator will display your expected returns within seconds, and you can then adjust the tenor until you arrive at suitable returns.

Keep in mind that the tenor has a significant influence on your returns. Longer tenors result in higher earnings, and vice-versa. This is why it is best to choose the maximum tenor possible when investing toward your future objectives.

4. Benefit of interest compounding for generous returns

When the goal is to invest and work toward a more secure financial future, you need to invest accordingly. Thankfully, fixed deposits work well because they offer the benefit of interest compounding.

This is the process by which your interest earned gets reinvested along with your principal amount periodically. As such, the longer you stay invested, the greater the effect of compounding on your initial investment.

To truly tap into interest compounding, you need to meet two criteria:

1.  Opt for a lengthy tenor, at least 60 months

2.  Choose the cumulative FD type

Considering the repo rate pause set by the RBI, now may be a good time to consider adding the FD to your portfolio. Fixed deposits are a low-risk scheme and can generate returns, provided you invest wisely. You do not need to be a market expert to invest in an FD and grow your wealth.

FD is an intelligent investment option with great returns and low risk. It has many benefits, and is an easy way to start working toward a financially secure future.

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