Most Indians rely on FD accounts (Fixed Deposit accounts) for storing their excess funds. An FD account is best for storing your surplus savings and reaping better rewards over a period. Indians prefer investment options that do not include any risk. FD accounts are a risk-free investment option that can help in the era of financial uncertainty. The increase in the number of FD account providers and banks in India has also popularised FD accounts. Read on to know why FD accounts are the first choice for Indians.
FD Account: Explained
One should know the basic meaning of an FD account . An FD account is different from a regular savings account or a bank account. By opening an FD account, you will deposit your surplus savings over a period. Usually, a fixed amount is deposited in the FD account over a period by the person. Every FD account has a maturity period which is pre-decided by the bank. Once the FD account matures, you don’t have to make deposits anymore. After maturity, it is time to reap the benefits from the FD account. You will receive a fixed amount in instalments once the FD account matures.
Along with your principal amount, the bank will also return interest charges after an FD account matures. Since it is guaranteed that you will get your principal amount back, an FD account is a risk-free option for investment. The interest charges returned by the bank can depend on numerous factors and are pre-decided. FD rates can change from one bank/provider to another. Let us now understand why Indians prefer FD accounts over other types of investment.
Before you know why people prefer FDs, you have to know a little history. Earlier, all financial institutions had to decide on FD rates for tenures anywhere between one and fifteen years. Also, the upper limit for FD rates was 8%, as decided by the then government. However, these restrictions for FD rates and maturity were removed in 1985. By the end of 1992, FD rates were no longer subject to the maturity of the FD accounts. Banks were free to offer an interest rate of up to 13% for a deposit tenure of more than 46 days. By the end of 1997, FD rates were not dependent on the bank rates. In 2022, banks can set their interest for FD accounts without being compliant with the rates of other financial institutions. Indians are happy with banks that offer high interest on FD accounts, especially senior citizens.
The Indian population predominantly consists of the middle-class section. Middle-class individuals do not have ample disposable income. They do not want to invest in high-risk financial instruments. A fixed deposit account is a risk-free source of investment, and middle-class individuals prefer it. When people do not have ample financial backing, they look for risk-free investment options. Also, low-earning individuals can benefit from FDs. They can make small deposits in instalments for their FD account. Over a period, they can accumulate larger funds from the FD account after maturity.
Pros of FDs in India
Some advantages of FDs for Indians are as follows:
- An FD account can act as an income source for retired and senior citizens in India.
- Since FDs are a liquid form of investment, one can easily withdraw funds when needed. However, one should wait till maturity to reap better rewards via their FD.
- One can also get a loan or a credit card with the help of their FD account. Compare FD rates right away!
Everyone looks for risk-free investment options. FDs for Indians act as a safe option to store the surplus in return for rewards. FD rates differ from one bank to the other based on several factors. Funds can be withdrawn at any moment at the investor’s convenience. It is one of the most significant ways most Indians prefer Fixed Deposit accounts over other investment options.