In the face of the unprecedented events and looming uncertainty concerning job loss and pay cuts, the need to have emergency funds has come to the forefront. To overcome these everyday affairs and to be in a better position to overcome financial distress without being impacted in an adverse way having a fund which can preserve your way of life is a must.
The key is having funds for at least 3-6 months that can help you to support ourselves as well as our families in such fallout—a fund which not just ensures growth but also provides safety and liquidity. Choosing the right financial instrument that stands on the above parameters is the next step to tackle any financial crisis.
Fixed Deposits in the times of financial crisis
Various options can help during the moment of crisis. A gold loan is one option one can consider. However, if you are looking to build your emergency funds for a longer run, a fixed deposit would be an ideal choice and here is why!
Benefits of investing in a fixed deposit
A fixed deposit is a financial instrument where one can invest funds for a fixed tenure and get guaranteed returns on the investments. The mandate of a fixed deposit ranges from 7 days to 10 years.
- The rate of interest on fixed deposits remains fixed during the tenure of investments. Thus, if the FD rates get reduced, it won’t affect your returns.
- Investors can get higher returns on fixed deposits than a regular savings account. Presently, PNB Housing Finance provides the highest FD rates between 7%-7.35%. FD rates for Senior Citizens are higher than FD rates of normal FD.
- A fixed deposit offers flexibility to choose the tenure of investments. One can select short-term, medium-term or long term FD as per their requirements. However, you must know that funds invested in the long term FD usually attracts higher returns.
- If you want assured returns without any market risks for a longer tenure, then it is an ideal choice for investment.
- Investors can also get insurance up to Rs. 5 Lakhs on their investments if they have invested their funds in Bank FD. The insurance cover is provided by DICGC (Deposit Insurance and Credit Guarantee Corporation) which is a wholly-owned subsidiary of the Reserve Bank of India or RBI.
- To get tax benefits, one can invest in Tax-Saving Fixed Deposit. A tax-saving FD is a type of fixed deposit where investors can invest funds for a tenure of 5 years and can get tax exemptions upto Rs. 1.5 Lakhs on the principal amount invested in these FD.
Loan against fixed deposits: A fixed deposit not just provides assured returns on investments but one can also take a loan against their FD. Taking a loan against FD has its own advantages. For instance, one can continue to receive interest on their investments and also withdraw funds without actually breaking the FD.
- The rate of interest on loan against FD is 1%-2% higher than the rate of interest on FD.
- There are no prepayment charges on loan against fixed deposits.
- You can get a loan upto 90% of funds deposited in FD.
Conclusion: A fixed deposit is thus one of the most popular and preferred choices that encourage the habit of savings among investors. It provides assured returns on investment for the long term and helps to build an emergency fund. If required, one can also take a loan against FD without breaking the FD in the times of financial crisis.
Read more: Should You Open a High Interest Savings Account?
Summary: How can fixed deposit help during the moment of crisis ?
In the face of the unprecedented events and looming uncertainty concerning job loss and pay cuts, the need to have emergency funds has come to the forefront. Various options can help during the moment of crisis. A gold loan is one option one can consider. However, if you are looking to build your emergency funds for a longer run, a fixed deposit would be an ideal choice and here is why!
A fixed deposit is a financial instrument where one can invest funds for a fixed tenure and get guaranteed returns on the investments. The mandate of a fixed deposit ranges from 7 days to 10 years.
- The rate of interest on fixed deposits remains fixed during the tenure of investments.
- Investors can get higher returns on fixed deposits than a regular savings account.
- A fixed deposit offers flexibility to choose the tenure of investments. One can select short-term, medium-term or long term FD as per their requirements.
- Investors can also get insurance up to Rs. 5 Lakhs on their investments if they have invested their funds in Bank FD.
- To get tax benefits, one can invest in Tax Saving Fixed Deposit.
- A fixed deposit not just provides assured returns on investments but one can also take a loan against their FD.
