As the world recovers from the financial crisis of 2020, investors are paying close attention to the interest rates offered by banks and financial institutions. With RBI keeping a tight grip on the interest rates in the economy, the Fixed Deposit (FD) as an investment option is regaining popularity in India.
The current fixed deposit interest rates hover around 5%-7% with tax deducted on the interest earned. With a long-term view, investors are looking at locking in FD interest rates for 2024 to maximize their returns. But is this investment strategy worth it? Let’s weigh in the pros and cons.
Pros of Locking in FD Interest Rates for 2024
Locking your money in an FD for a long-term of 3 years can earn you a higher rate of interest compared to short-term investments. Currently, most of the banks offer rates around 6%-7% for a fixed deposit investment of 3 years. By locking in on a fixed rate, you can ensure that you earn the same return for the entire period, irrespective of the fluctuations in the market conditions.
Most banks do offer higher interest rates for senior citizens, which can be an additional incentive for this age group to invest in FD for the long term. It is advisable to also compare the FD rates offered by different banks before investing to ensure that you get the best rates.
FD is considered to be a low-risk investment option due to its fixed rate of interest and the deposit is insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). As of today, the insured deposit amount in case of bank failure is Rs 5 lakhs per bank per depositor. Hence, investing in FD, especially for a long-term can be considered a safe and secure investment strategy.
One of the biggest advantages of locking in FD interest rates for the long term is predictability. By locking in FD interest rates for 2024, you will know exactly how much return you will earn for the next 3 years. This can help in planning your financial goals, and you can make regular financial projections and plans to maximise the use of your earnings.
Cons of Locking in FD Interest Rates for 2024
The biggest disadvantage of locking in FD interest rates for the long term is the low returns. With the current bank FD interest rates standing at 6%-7%, the returns may not be enough to beat inflation or help you achieve your long-term financial goals. While the returns are assured, they may not be enough to beat the rising prices of goods and services.
Investing in FDs locks in your money for the investment term, making the investment less liquid. You cannot withdraw the deposited money before the maturity of the investment period. There may be some banks that allow partial withdrawal before the maturity date, but it generally comes with heavy penalties that reduce the interest earned and, in some cases, eat into the principal amount.
Unfavorable tax implications
FD interest is subject to tax, and with the long-term investment, you may end up paying higher taxes than you would with a shorter-term investment. This can reduce the post-tax returns, making FDs less attractive in the long run.
So, is locking in FD interest rates for the long term worth it? Well, that depends on your financial goals and investment objectives. If you are looking for a safe and low-risk investment option with assured returns, FD may be the right choice for you. Moreover, if you’re close to your retirement or in the retirement age bracket, investing in FD can help in generating regular income. However, FD interest rates for 2024 may not be enough to beat inflation and achieve long-term financial goals. Investors must also take into account the taxes levied on the FD interest that can impact the overall returns.
Investors should study all the pros and cons of trading in the Indian financial market before investing. They should review and compare the FD interest rates offered by different banks, analyse the maturity period and cost of premature withdrawal before locking in the interest rates for the long term. In conclusion, locking in the FD interest rates for 2024 can be a good investment option for those looking for safe investment options that offer stable and assured returns by checking it by fixed deposit calculator.
Locking in FD interest rates for the long term is regaining popularity among investors in the post-2020 economic world. While it offers higher returns, predictability, and low-risk investment, it also comes with limited liquidity, low returns, and unfavorable tax implications. Investors must evaluate all the pros and cons of trading in the Indian financial market before taking a decision, as FD interest rates for 2024 may not be enough to beat inflation and achieve long-term financial goals.