These days, it’s crucial to get a head start on saving and investing early in life. In a matter of years, the purchasing power of money can depreciate due to inflation and growing costs of living. People need to save and invest for long-term goals including marriage, homeownership, their children’s college educations, and retirement in today’s market.
Many options exist for consumers to safely and profitably invest their money. Among them, Fixed Deposits has maintained its status as a go-to option for many.
Why should you invest in a Fixed Deposit?
If you’re investing your own money, whether you’re a student or a working professional, you want to maximize your returns while minimizing your loss exposure. Stocks and mutual funds are only two examples of market-linked investments, and both come with the potential for loss if the underlying markets perform poorly.
The principal advantage of a Fixed Deposit is that the returns are independent of the performance of the market. For the time period and the loan amount you specify, the financial institution will charge you a set interest rate.
Having this assurance is useful for both students and working professionals as they manage their budgets.
Advice on Fixed Deposits for Academics and the Workforce
Although Fixed Deposits are the most common type of investment in India due to the security and predictability of their returns, there are a few things you should know before opening one.
1. Sum Required to Make a Deposit
Check the minimum deposit requirement of the bank or financial institution if you are a student or have recently begun working. While some financial institutions may accept Fixed Deposits of less than Rs.5,000 or Rs.10,000, you can start with even smaller amounts (in the order of a thousand rupees).
2. Loan against FD
Most banks will let you borrow money against your Fixed Deposit if you ever need emergency cash but don’t want to risk losing your savings. This is a crucial feature.
For example, if you put Rs.2 lakhs (about $2,500) into a three-year Fixed Deposit at 8% interest, and you have a financial emergency and need Rs.50,000 one year after making the deposit, you can borrow against your FD. If interest rates on Fixed Deposits have decreased to 6% per year at that time, withdrawing from your FD and opening a new one for Rs.1.5 lakhs will give you a lower interest rate.
However, if you borrow Rs.50,000 against your current FD, you can keep your high-interest deposit while paying a reduced interest rate on your loan.
3. Total Fixed Deposit Accumulated
Interest on a standard Fixed Deposit is paid out once every quarter. You can choose a Cumulative Fixed Deposit if you don’t intend to withdraw the interest anytime soon. The interest earned is reinvested into the FD under this arrangement. As the principal grows, so does your interest income.
For instance, if you invest Rs.2 lakhs for three years at an 8% annual interest rate by opening a Fixed Deposit, a regular fixed deposit will earn you Rs.4,000 in interest every three months. After three years, you’ll have accrued Rs.48,000 in interest.
In contrast, if you choose a Cumulative Fixed Deposit, earning the same interest rate over the same period (with quarterly compounding), you would get a total of Rs.53,648 in interest. Therefore, you can increase the amount received in your account by Rs.5,648 each year if you forego the quarterly interest withdrawal.
4. Premature Withdrawals
Opening a Fixed Deposit account is equivalent to signing a contract with a bank for the duration of the deposit’s tenure. In exchange, the financial institution claims it will pay interest on the deposit.
However, you can get your money out of the investment early if you need to. The bank may impose a fee for early withdrawal. Before you create an FD account, you should learn the rules of early withdrawal.
5. Minimum and Maximum tenure
The typical Fixed Deposit term offered by a bank is between 7 days and 10 years.
Conclusion
Fixed Deposits are a safe way for students and working people to build savings without taking on market risk. The returns are smaller than those available through equities and mutual funds, but the associated risks are almost none. Therefore, FDs can help you get started investing and build up the initial corpus without requiring you to take on undue risk.
FAQs about Fixed Deposits for Students and Working Professionals
A fixed deposit (FD) is a type of financial investment in which you make a one-time, lump sum payment at a predetermined interest rate to a bank for a set amount of time. It is unaffected by changes in the market and provides guaranteed returns. fluctuations.
For those wishing to optimize profits with the least amount of risk, fixed deposits provide a reliable and secure investment choice. They are a good option for managing budgets for both working professionals and students because they offer guaranteed returns.
Each bank has a different minimum amount needed to open a fixed deposit. Deposits as little as one thousand rupees or less than Rs. 5,000 or Rs. 10,000 may be accepted by certain financial institutions.
In an emergency, you can, in most cases, borrow money against your fixed deposit without having to break the FD. In this manner, you can pay a lower interest rate on the loan and continue to earn interest on your deposit.
Depending on what the bank offers and your investment objectives, a fixed deposit’s normal tenure can be anything from 7 days to 10 years.