Pros and Cons of Investing in Fixed Deposit in 2021

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Even after all of these years, fixed deposit has managed to maintain its position as one of the most popular choices of investment for individuals. Low risk and stable returns make fixed deposits the best investment choice for conservative investors.

That said, the big question now seems to be whether this investment option is still relevant in 2021. And that’s exactly what we’re going to be looking at in this article. Here are a few of the pros and cons of investing in fixed deposits in 2021.

Pros of investing in fixed deposits

There are plenty of advantages that you get to enjoy by investing in fixed deposits in 2021. Let’s take a quick look at a few of them.

1.      Deposit insurance

Fixed deposits are generally very safe and carry little to no risk of default. However, if you’re still worried whether the FD that you have with your bank would be repaid in entirety, here’s something that can calm you down.

In the Union Budget 2020, the deposit insurance on FDs backed by the Deposit Insurance and Credit Guarantee Corporation (DICGC) was hiked to Rs. 5 lakhs from the erstwhile amount of Rs. 1 lakh. This has managed to further lower the risk faced by FDs and has made it even safer.

2.      Guaranteed returns

Unlike many other investment options, the returns on an FD are fixed. The interest rate that’s prevailing at the time of investment would continue to apply till the end of the tenure. This enhances income certainty and allows you to enjoy more stable returns.

3.      Ability to avail loans

Another major advantage of investing in fixed deposits in 2021 is the fact that you can avail a loan on them at any point in time. If you’re ever in an urgent need for some funds, you don’t have to break your FD. Instead, you can simply avail a loan against it and repay it later. This will allow you to keep your FD intact, without causing any disruption in your income flow.

Cons of investing in fixed deposits

Unlike the pros, the cons of investing in a fixed deposit scheme are very few. Here’s a brief overview.

1.      Penalty on premature withdrawals

Although premature withdrawals are allowed on fixed deposits, most financial institutions charge a penalty of around 1% for doing so. This can end up reducing the amount of interest that you get to enjoy.

2.      Interest on FD beyond a threshold is taxable

If the interest that you gain from your FD is beyond Rs. 10,000 in a financial year, the remaining amount automatically becomes taxable according to the income tax slab rate that you fall under. This can end up increasing your income tax burden.

Conclusion

With the pros clearly outweighing the cons, investing in fixed deposits in 2021 is still a very good choice that you can make. If you’re looking for some of the best FD options available in the market right now, make sure to check out Finserv MARKETS.