Savings is something that we are taught from a very young age and to do so we adopt several methods and measures. Some invest in mutual funds while others invest in land or properties. There are also people who go the traditional way by saving money in different savings bank accounts. A few decades back, this method of saving money would have been enough but today, this is certainly not enough to get a comfortable life after retirement or fulfill other financial goals.
If you want to get better returns on savings, the first thing that you need to change is the way you have been saving your money. If you’re one of those people who are afraid to invest in stocks or cannot afford to invest in properties or land, then you should consider investing in a fixed deposit.
What is a Fixed Deposit?
A fixed deposit (FD), is one of the financial instruments offered by many banks across the nation. It is one of the safest investment options as it ensures fixed returns on the invested amount. When a person invests in a fixed deposit, his/her money gets locked for a fixed period of time and earns interest till it reaches maturity.
Our typical fixed deposit duration is 6 or 12 months (although there is room to negotiate where large sums are in question). It is up to the investor to decide their preferred maturity period.
What are the main benefits of a Fixed Deposit?
1. Returns Guaranteed
Since a fixed deposit has nothing to do with market rates, it is safe and promises guaranteed returns. The returns will only be dependent on the amount deposited, tenure of the FD and the rate of interest that is applicable as per the tenure.
2. Secure Investment
A fixed deposit is known to be one of the safest investment options. Unlike other investment options such as stocks and debt funds, a fixed deposit is not dependent on the ever-changing market rates and thus involves no risk of losing money.
3. Loans/Credit against Fixed Deposits
Fixed Deposits are locked and pre-mature withdrawals attract a penalty. However, if you are in need of instant cash, instead of pre-maturely closing your FD, you can easily take a loan against it, with favourable interest rates.
4. Tax Benefit
As compared to other investment options, Fixed Deposits fall into a very favourable income tax bracket.
Why should you save with a Fixed Deposit as opposed to a Savings account?
1. Higher Interest Rates
An interest rate is one of the important factors to consider when you’re confused whether to invest in a fixed deposit or keep it as is in your savings account. If we draw comparisons between a fixed deposit and a savings account’s interest rates, then a fixed deposit is undoubtedly a smarter alternative.
Our Fixed Deposit account offers the HIGHEST interest rate in Kenya of a guaranteed minimum 10.5% on amounts from Kshs. 50,000.
2. Returns with Respect to Term
Besides considering the rate of interest, investors must also analyse from where they receive more returns in the short term. In this case, a fixed deposit scores more points as it is a better option to meet short-term financial goals. Even if you invest for a few months in a fixed deposit, you will earn more than you would from your savings accounts.
3. Loan benefit
Another prominent benefit of a fixed deposit is that it gives you better security than a savings account. If you’re in a financial emergency and need cash urgently, you can take out a loan against fixed deposit, and at a favourable rate of interest.
There is no such provision for a savings account.
People put their money in a bank account to earn interest. You can earn interest in both a savings account and a fixed deposit but your money grows more when locked in for a fixed tenure.
Therefore, if you ever have to decide between investment in a fixed deposit or keeping it in a savings account, then on the basis of the above comparisons it makes good financial sense to invest in a fixed deposit.
This article was originally published in Home Business.