Pros And Cons Of A Fixed Deposit
When you refer to the advantages and disadvantages of financial tools, you typically focus on the returns and the risk. Traditionally, fixed deposits are considered low-risk & low-returns products. It is important, though, to evaluate the implication of this term for your financial future.
Benefits of a fixed deposit:
• Stable income:
Fixed deposit schemes in India are competitive products. Different organizations offer attractive packages wherein you can enjoy returns on a monthly, quarterly or annual basis. Once you submit the money into the organization, they are bound to give you the interest as per the pre-determined percentage. Make the fixed deposit for a long term like 10 years and you can continue to gain the same amount as interest for the next 10 years. There are very few financial tools that can offer you that.
• High interest possible:
In spite of getting touted as a low returns product in the investor community, you can enjoy higher returns with company fixed deposits too. So, along with the security of the fixed deposit schemes, you can get higher returns as well. However, these lucrative offers are not always available like traditional fixed deposits since they are often limited period offers.
• Right choice for bearish market:
In this market, a lot of stocks and mutual funds do not make great earnings. Within an industry-based or economy based recession, it is risky to put money in any kind of high-risk product. The smart money says that during this time, you should invest in a fixed deposit account as the stability can be a far more rewarding investment choice.
Cons of a fixed deposit:
• Limit of income:
Within the range of the returns, check the potential for earning from mutual funds and equity stocks, as well. Through capital gains, it can be significantly higher. There are stocks that offer 100% growth over time. Though, it is neither easy nor obvious, it is possible. Fixed deposits can never offer more than 8% to 10%, which is much lower, yet consistent.
• Low liquidity product:
If you withdraw money prematurely from your fixed deposit account, you will have to pay the penalty. You cannot skip this part as it is a part of the contract. Though the liquidity is much higher than the real estate or the stock markets, premature penalty can cause losses for sure.
Bearing all this in mind, it is advisable to clearly understand this product holistically and using it to your advantage.
