What Makes a Fixed Deposit the Safest Investment Option in a Risky Market?

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Last Updated on March 17, 2024 by Umer Malik

You’ve heard the saying “investments are subject to market risks”. This is why you might be deterred from investing your hard-earned funds in a market that isn’t doing well. But you might miss out on a good way to grow your money safely, especially if you haven’t invested your savings in a fixed deposit (FD).

If you didn’t know already, fixed deposits or term deposits are investment accounts to grow your money. The amount you deposit will earn a fixed rate of interest based on the amount deposited and the length of time the account is open.

Here are some of the reasons, which make a term deposit a safe investment option, especially in a risky market:

Five Reasons That Make Fixed Deposits the Perfect Investment Choice in a Risky Market

1. Secure Investment Plan

Unlike other investments, market fluctuations don’t impact your funds in the term deposit. This is because the interest offered by the bank depends on the terms specified by the bank, and not the market.

If you want assured investment returns, term deposits are the best option.

2. Loan Against Term Deposit

When you invest in a risky market, you want to ensure your funds are safe yet accessible. A term deposit allows you to do just that. It enables you to access funds in an emergency without breaking your fixed deposit prematurely. Moreover, a term deposit loan is easy to obtain, and you can borrow up to 90% of your fixed deposit amount. The best part? You can repay them at an interest lower than a personal loan!

3. Tax Benefits

If you want your fixed deposit to help you get even higher returns, use five-year fixed-income schemes to claim income tax deductions under section 80C of the Income Tax Act of 1961. Any investor can receive a maximum tax deduction of Rs 1.5 lac per year if they invest in a tax-saving term deposit, as per the act. But remember, the interest on the FD is classified as income from other sources. In addition, if the amount of interest earned from all accounts with the bank exceeds Rs 40,000, the bank deducts TDS.

4. Flexibility and Liquidity

Fixed deposits have become one of the most appealing investment options for investors due to their flexible tenure. You can choose any tenure, from as little as seven days to a maximum of ten years, for the maturity of your scheme.

You can select monthly or quarterly interest payouts here, depending on your needs. You can also choose not to collect and reinvest the interest to take advantage of the compounding effect and help your money grow faster.

5. DICGC Insurance Cover

Thanks to the Deposit Insurance and Credit Guarantee Corporation (DICGC), your term deposit is a safe investment. The DICGC insures term deposits (principal + interest amount) with nationalised banks for up to INR 5 lakhs in each bank. By investing INR 5 lakh across multiple banks, you can be assured of the highest level of security.

Furthermore, the predetermined interest rate on your term deposit remains constant throughout, protecting your investment regardless of market fluctuations during the term of your term deposit.

5. DICGC Insurance Cover

To Wrap it Up

Fixed deposits are some of the most reliable investment options, especially in a risky market. However, to get good returns on your deposit, you must do three things –

  • Develop a solid financial plan
  • Define your investment objectives
  • Determine your risk tolerance
  • And choose the right mixture of tools first before investing in a financial instrument.

Apart from this, if you are interested to know about Fixed Deposit (FD) Calculator then visit our finance category.

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Sophia Anderson is a finance writer and blogger with a passion for helping people improve their financial literacy. With over 5 years of experience in the finance industry, Sophia has worked with individuals, families, and small businesses to provide financial advice and guidance. Her expertise includes budgeting, saving, credit management, and debt reduction. Sophia is dedicated to breaking down complex financial concepts into easy-to-understand language and empowering her readers to make smart financial decisions. She is a frequent contributor to financial publications and has written extensively on topics such as personal finance, investing, and financial planning. Sophia's mission is to help people take control of their finances and achieve financial security and freedom. When she's not writing, Sophia enjoys hiking, practicing yoga, and reading personal finance books.