Pros and Cons of a Fixed Deposit

Considered as the most reliable form of managing funds, bank deposits have been favored by customers for their ability to safeguard against financial strains. It is not surprising  that analysis reports by the Reserve Bank of India reveal a cumulative amount of more than Rs. 35,68,430 crore in banks across the country.

However, while a bank deposit may seem like the safest instrument to preserve your money, it is imperative that you consider certain factors before investing your funds.

Here are a few pros and cons you must weigh before opting for a bank or fixed deposit (FD) as it is better known.

Pros of a fixed deposit

  • Financially speaking, having an FD places you in a secure position because of the assured returns that accompany it. Besides, this type of investment is comparatively safer than the risky commodity or stock market. It offers you definite returns and you won’t have to worry about the security of the investment, thus providing you a hassle-free experience.
  • Another reason you should be investing in a fixed deposit is because it grants the flexibility to modify certain guidelines like maturity term that ranges from one month to one year, or even 10 years depending on preference. Furthermore, the starting amount to apply for an FD is not specific, thereby giving you the flexibility to invest as per your financial ability.
  • One of the other main reasons why an FD scores higher than its counterparts is its high liquidity. With an FD, you wouldn’t have to worry about not having finances in hand for immediate expenses like medical bills and other emergencies as it instantly provides cash. Investing in an FD facilitates easy withdrawal with the minor drawback being a slight reduction in the interest income.

Cons of a fixed deposit

  • Investing in other segments like real estate, stock markets, and gold gives you the opportunity to gain additional benefits and diversify your investment goals. However, playing safe by investing only in an FD prevents you from a possibly rewarding investment experience in the stock market.
  • Periods of inflation could spell trouble if you have invested in an FD. This financial crunch is related to the low returns from your FD that could prove to be ineffective in meeting the high expenses incurred because of inflation. However, FD interest rates are higher than a savings account, which additionally enhances the former’s appeal amongst customers.

Overall, having an FD offers optimum security particularly if you have a low-risk appetite and investing in stock or commodity markets is not a viable option. Even though this is a conventional form of investment, banks have now introduced varied offers to attract customers. Checking current FD interest rates as well as keeping track of the ongoing changes in the economy will help you have a smooth experience and gain maximum benefits on your investment.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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