For most Indians, one of the safest and most desirable investment choices is to create a fixed deposit. It offers the security as well as an attractive interest rate that makes it the obvious choice. However, with a tax saving FD, you are assured of enjoying the benefits of your savings by availing tax benefits. Continue reading to understand the benefits of a tax-saving FD.
What is a Tax-Saving Fixed Deposit, and How Does It Work?
A tax-saving fixed deposit allows you to grow your savings with high interest rates. By being able to avail yourself the benefits of Section 80C of the Income Tax Act, one can avoid any taxes on the FDs. You can claim tax deductions for up to Rs. 1.5 lakh per annum. Additionally, to avoid paying tax when the amount matures, you can submit Form 15G or Form 15H for senior citizens requesting banks not to deduct TDS on the interest earned.
Why should you opt for Fixed Deposit?
Opting for a fixed deposit is ideal if you are more interested in savings than investments. It allows you to deposit a lump sum amount for a selected tenure (five years for tax saving FDs) during which the amount will be compounded with high interest rates.
This type of investment allows one to prepare for any expenses that may occur in their future, such as education, marriage, etc.
Some fixed deposits also allow you to invest at different intervals, such as DBS Bank Fixed Deposits, which allow you to invest periodically. This makes it easy to start an FD account without the pressure of investing a lump-sum amount.
In terms of the rate of interest on fixed deposits, you can expect to earn from 5.5% to 7.75% annually when you open an FD account with a credible bank like DBS Bank. Senior citizens can also enjoy a more lucrative 8% interest rate on FDs.
What are some benefits of Tax-Saving Fixed Deposits?
Aside from tax benefits, there are numerous benefits that come with a tax saving FD that make them the go-to option for all types of account holders. Some of these benefits are:
- Easy to Open and Manage
Opening a fixed deposit account is an effortless process, as you can open one instantly with zero physical documents. Most fixed deposits are easily accessible via web and mobile apps.
- Risk-Free Deposits
You can be rest assured that your deposits are safe when investing in a tax savings FD with a credible bank, as the amount is properly secured by them. Additionally, deposits of up to Rs. 5 lakhs are insured by RBI under DICGC (Deposit Insurance and Credit Guarantee Corporation).
- Cumulative Deposits
Maximize your earnings by choosing a cumulative fixed deposit. This option allows you to reinvest the maturity amount of your current fixed deposit, helping you earn interest on your interest and boost your overall returns.
- Assured Returns
Unlike other investment instruments that are subject to market trends, a fixed deposit provides you returns that come with zero risk. This can be ideal if you are looking for risk-averse investments. The safety of assured returns on fixed deposits offers peace of mind through the volatile market trends.
- Goal-Oriented Savings
Whether it is to fund education or a house purchase, you can have goal-oriented savings in your FDs. One can open as many fixed deposit accounts as they want. By creating different accounts, one can segregate their savings per their respective goals.
Why should you invest in a fixed deposit over other options?
When compared to other options for investment, a fixed deposit stands out as being the ideal choice for having a secure as well as versatile investment. On the other hand, one can also consider investing in mutual funds or stocks for their high returns. Alternatively, investments such as PPF (Public Provident Fund) are great for individuals looking for long-term investment.
ELSS or Equity Linked Savings Scheme is also one of the options for long-term investing. This scheme provides the benefit of returns as the amount is invested in equity-related instruments.
All things considered; a fixed deposit is one of the more preferred options for growing your savings. One can easily start investing by starting with Rs. 5,000.
Conclusion
Investing in a fixed deposit is a reliable way to grow your savings while enjoying tax benefits. With its strong protection against market volatility and the flexibility to choose the tenure, a fixed deposit offers excellent versatility. It’s an effective strategy to accelerate progress toward your financial goals and future planned expenses.
