Mutual funds, SIP, PPF, FD, and others provide a healthy investment plan for those retiring. A steady and secure future after retirement is what one wants for ensuring a consistent income.
However, a fixed deposit or FD account can deliver more benefits than any one of the above. FD accounts provide more security and interest returns and are thus, preferred more by individuals on the verge of retirement.
Also, banks and NBFCs have now made it possible for individuals to apply for a fixed deposit account online. With minimal documentation, they provide an online solution for easy management of the account.
By using an FD calculator provided on their websites, one can even calculate the total interest he/she will earn on the investment to create a retirement portfolio.
Individuals aiming for a sturdy retirement portfolio look to turn whatever surplus they earn from a bonus, gratuity, monthly savings, and others into a lucrative investment. Fixed deposit accounts vouch for a profitable platform in turning their surplus into fruitful monetary benefits.
Here are some of the ways in which one can create a superior retirement portfolio through FDs:
- Cumulative Fixed Deposits
Interests on cumulative fixed deposits are paid annually, quarterly or at the time of its maturity. Banks and NBFCs compound the FD interest rates quarterly or yearly on the principal and pay the entire lump sum when it matures.
E.g., A fixed deposit of Rs.1,00,000 for 60 months at an 8.40% rate of interest will provide a total interest of Rs.49,674.
- Non-Cumulative Fixed Deposits
Unlike cumulative, non-cumulative fixed deposits offer interest monthly, quarterly, half-yearly, and annually. Hence, non-cumulative FDs may provide more benefits to those that look for steady monthly income after retirement.
E.g., An FD of Rs.1,00,000 at 8.18% rate of interest will provide a total compound interest of:
- 40,650 when monthly.
- 40,900 when quarterly.
- 41,250 when half-yearly.
- 42,000 when annually.
Monthly payouts can work in the best interest of those retired; however, that would be taxable.
- Benefits from Income Tax
Other than monthly incomes, interests received from FDs are exempted from income tax. Under section 194A of the Income Tax Act, senior citizens that earn up to Rs.50,000 as interest from FDs will receive an exemption from tax.
- Flexible Tenures
With fixed deposit tenures ranging from 12 to 60 months, one can decide effectively on the right ways to invest.
Crating a short-term or long term FD with a salary bonus can help in making sure that one’s future after retirement remains sturdy.
- High Liquidity
During emergency situations, fixed deposits can come to the rescue as one can withdraw them whenever they want to. FDs offer high liquidity, and an individual only has to pay a certain penalty to withdraw the investment prematurely.
- Multiple Fixed Deposit Accounts
Fixed Deposits accounts don’t come with any limits, and an individual can create multiple ones of them. Depending on their requirement, those retired can have a mix of short-term and long-term fixed deposits.
- Loans Against FDs
If one wants to avoid a penalty, he/she can take a loan against his/her fixed deposit. NBFCs like Bajaj Finserv offer a loan of up to 75% on cumulative FDs and up to 60% on non-cumulative FDs.
Moreover, they process the loan application within 24 hours and disburse the amount within 72 hours in the bank account.
The FD works as a collateral for a secured loan and can serve during medical emergencies or even a wedding.
- Higher Interest Rates for Senior Citizens
Retired individuals can take advantage of the higher FD interest rates that banks and NBFCs offer. Compared to others, senior citizens can get up to 0.35% more rate of interest.
Owing to its above benefits, fixed deposits can make for a better solution in creating a retirement portfolio for individuals.
As mentioned above, Bajaj Finserv is an NBFC that can help those looking to make a sturdy retirement portfolio. With attractive interest rates for both cumulative and non-cumulative FDs, they offer tenures ranging from 12 to 60 months.
They also provide an FD calculator through which one can design FD plans that are rated FAAA (stable) from CRISIL and MAAA (stable) from ICRA.