News Karnataka
Sunday, November 27 2022
Personal Finance

How an FD Can Be an Effective Tool During Financial Crisis

Loan against Fixed Deposit
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A financial crisis can come knocking on your door any day. We saw this first-hand after the onset of the pandemic. However, if you are well-prepared for any weather, you don’t have any reason to worry.

One way to prepare for any economic climate is to invest in a fixed deposit. Why? Since FDs are immune to market risks, they can serve as a saving corpus for rainy days. You also get financial protection, stability against volatile market cycles, and steady growth on your pooled money. However, that’s not all.

What Makes Fixed Deposits So Effective During a Financial Crisis?

When faced with a sudden cash crunch, our savings corpus comes to the rescue. But what if you end up using all of it? In such a case, you can always redeem your equity instruments, but you may incur a hefty loss.

In contrast, a fixed deposit lets you access the invested money without a substantial loss. How? Well, because FDs offer ready liquidity.

Let us see how.

1.    Borrow a Loan Against the Deposit

Don’t liquidate your fixed deposit even if you are pressed for funds. Instead, you can use the corpus as collateral and take a secured loan against it. Most banks typically offer 90% to 95% of the FD amount as principal amount, and that too, at competitive rates. They are usually a percentage or two higher than the FD rate.

If approved, you get the funds in your savings account immediately. So, you can access quick funds without breaking your FD.

2.    Break the Deposit

Keep this option as a last resort. If nothing else works and you’re in dire need of cash, you can settle for a premature withdrawal. However, be prepared to pay a penalty fee.

 More Benefits of Investing in Fixed Deposits

If you think fixed deposits only offer security and nothing else, you’re in for a nice surprise. Here are some other benefits of investing in a fixed deposit:

  • Attractive Returns: The interest rates on FDs have increased considerably in the last few years. So you are bound to get handsome returns on maturity, irrespective of your invested amount.
  • Deposit Insurance: In India, all fixed deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). They insure FD amounts of up to Rs. 5 lakhs. So, your invested sum remains safe even during economic turmoil.
  • Flexible Tenure: FD tenures can range from as little as seven days to 11 years. However, the shorter the tenure, the lower is the return rate. So, pick the lock-in period wisely.
  • Easy Online Booking: You can now open a fixed deposit account in minutes using your Smartphone. Just provide your PAN and Aadhar number for authentication, and you’re done.

 To Sum Up

 It’s clear why fixed deposits are the preferred savings instruments for Indians generation after generation. If you, too, want to take advantage of their flexibility and security, just allocate a certain percentage of your portfolio to FD, and you’re good to go.

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