Today, we live in an uncertain world. This makes it crucial for everybody to have a robust economic safety net, and building an emergency fund can be helpful. Such a fund offers peace of mind and security, as you know you have enough money to tackle unexpected financial challenges and expenses.
When building an emergency fund, you can choose from various savings options. However, opting for a Fixed Deposit (FD) has become a popular choice.
What is an FD?
An FD is a type of Term Deposit. When you open an FD, a sum is locked in for a fixed tenure. The tenure depends on you investing the funds and usually ranges from seven days to 10 years. In return for locking their money away in the deposit, FDs let people earn interest at a fixed rate. Banks decide FD interest rates. Hence, they may vary across banks. Once the tenure ends and it matures, the depositor receives the principal sum they invested along with the maturity interest.
Advantages of FDs
The various benefits of using an FD as your emergency fund include the following:
- Save for your goals
You can save for any savings goal by opening a Fixed Deposit Account. This includes saving money to build an emergency corpus. FDs are stable and offer assured returns. Unlike other investments, FDs are not subject to market fluctuations. The interest rate remains the same during the FD term as decided at the time of account opening.
- Allows premature withdrawals
Besides a Tax-Saving FD, banks usually let you withdraw most of your FDs prematurely, i.e., before maturity. Your bank may charge a penalty. However, a Fixed Deposit offers you the flexibility to dip into your funds in case of a financial emergency.
- Preserves your capital
The primary objective of an emergency fund is to ensure capital preservation while earning reasonable returns. FDs do just that. When depositing money in an FD, you need not worry about capital erosion. The principal amount remains with the bank, and it is available to you whenever needed.
- Easy to open
Opening an FD is extremely easy nowadays. You can instantly open your FD online using the Banking app facility. The process is not only quick but also usually does not require any physical documents.
- Earns competitive interest
An FD can help you earn interest at competitive rates while ensuring capital preservation and stability. Interest rates usually vary across banks, so research them well. Once you do so, you can use online platforms to open your FD.
Conclusion
FDs can play a crucial role when building an emergency fund. Therefore, by adding them to your savings strategy, you can easily tackle financial emergencies.
