Fixed Deposit benefits: Three good reasons to start FD in SBI, HDFC, PNB, ICICI, other banks

The interest rates on Fixed Deposit (FD) accounts have gone up in the last one year, making it one of the most lucrative investment options

Fixed Deposit for a longer tenure gives higher returns because of the effect of compounding. Image: Pixabay

The interest rates on Fixed Deposit (FD) accounts have gone up in the last one year, making it one of the most lucrative investment options. FD has been a popular saving option for decades because of many reasons. First, it provides an assured return. Second, the interest rate on offer is known to the depositor in advance. This helps them in planning for future expenses. Third, unlike equity and mutual funds, there are no market risks involved with the deposits made in the FD account. While all these reasons are generally known to all investors, you may not be aware of the three reasons mentioned below:

1. Investing in a long-term FD ensures higher returns

Fixed Deposit for a longer tenure gives higher returns because of the effect of compounding. For example, a 7 per cent/annum interest for 10 years would give an effective yield of up to 10% on maturity.

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2. One can invest a different amount for different tenures

You can invest different amounts for separate tenures of 1, 2, 3, 4, 5 or 10 years, depending on your future financial needs. This will also help you earn higher returns than what you may get by keeping the money idle in the savings account.

3. Safe Emergency Fund investment option

Your fixed deposit account can serve as one the safest options for the creation of an Emergency Fund. Not only this, you can fund your immediate needs even without breaking the FD. For this: Several lenders offer an instant loan against the FD via netbanking. The interest charged on loan against FD is not very much more than what it gives per year. Secondly, some banks also allow partial withdrawal from an FD.

You can open an FD account with leading lenders like SBI Bank, HDFC, ICICI Bank, PNB, Bank of Baroda etc. These banks offer up to 7.5% interest on FDs of different tenures. Some of the smaller banks are offering interest rates above 8% these days.

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