Know if FD is a Good Investment Option

When considering investment options, a Fixed Deposit (FD) might not be the first choice that comes to mind. Many people avoid it because it lacks liquidity and relatively low interest rates. However, a simple FD can still be a powerful tool for wealth creation. During periods when the stock market is volatile or returns are uncertain, the reliable Fixed Deposit often outperforms other investment options. If you are curious why an FD might be a better choice than other investments, this guide is for you.

Here are five reasons why FD is the best investment option:

Sweep out facility

A Sweep-Out Facility in Fixed Deposits automatically transfers excess funds from your savings account into a Fixed Deposit, offering higher interest rates. When the savings balance exceeds a pre-set limit, the extra amount is moved into the FD while still keeping a portion liquid for regular transactions. Whenever the funds are needed, the bank withdraws that amount from the Fixed Deposit, but the balance continues to earn interest at higher rates. This facility offers the chance to create significant wealth for people putting their funds in Savings Accounts.

TDS limit

Income from a Fixed Deposit is subject to Tax Deducted at Source (TDS) only if it exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year. To avoid TDS, non-senior citizens can submit Form 15G, while senior citizens can submit Form 15H. By providing these forms, the bank will not deduct TDS from the FD interest, allowing you to retain a larger portion of your earnings. This ensures that the full amount of interest is available for your investment.

Flexible period of investment

You can open a Fixed Deposit with a bank for periods from 7 days to 10 years. The Fixed Deposit rates vary depending on the period for which the funds have to be invested. However, you can calculate the interest you will earn using the FD calculator to help you make a decision. FDs provide safety of capital even for short-term deposits.

Auto renewal facility

Most banks offer the option to auto-renew your Fixed Deposit if you provide standing instructions. This feature makes FDs a highly convenient investment choice. The ease of automatic renewal ensures that your investment continues without manual intervention, offering a hassle-free way to manage your funds. If you are considering an FD's advantages, its unparalleled convenience is a significant benefit that sets it apart from other investment options.

Loan facility

A loan against a Fixed Deposit allows you to borrow money using your FD as collateral. You can typically borrow up to 90% of the FD's value. Interest rates on these loans are usually lower than other types of personal loans. The FD remains intact and continues to earn interest while the loan is active. If you fail to repay, the lender can recover the loan amount by liquidating the FD.

Fixed Deposits remain popular for conservative investors due to their safety, guaranteed returns, and ease of management. They are particularly suitable for those with low-risk tolerance or specific short to medium-term financial goals. While FDs may not offer the highest returns compared to market-linked investments, their stability and predictability make them valuable to a diversified investment portfolio.

Want to open a Fixed Deposit? Click here to get started!

Want to know more about how a Fixed Deposit works? Click here to know how!

​​​​​​​Create hassle-free Fixed Deposits with HDFC Bank Savings Account. New customers create a Fixed Deposit by opening a new Savings Account, existing HDFC Bank can create their Fixed Deposit by clicking here.

*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.