Some of the draws to Fixed Deposits include their fixed time period, solid interest rates, and relatively quick access. This makes them an especially convenient method to start our investment portfolio.
If you’ve placed your money in Fixed Deposits before, good! We welcome you to invest smarter using Fipbox. If you haven’t, don’t worry. We will guide you through the pros and cons of Fixed Deposits and allow you to make a more informed decision.
The advantages of Fixed Deposits
1. They are safe investments.
In comparison to high-risk investments with volatile rates such as shares and mutual funds, for example, Fixed Deposit interest rates aren’t affected heavily by fluctuating interest rates in the finance market. You can remain in-the-know about all the latest interest rates on Fixed Deposits, through Fipbox.
2. The risk factor is minimized.
A Fixed Deposit is usually from a minimum period of 1 month up to a maximum period of 60 months (5 years), in Sri Lanka. This fixed-term ensures that you will receive a significant return on your money and also that your money will be held safely during the stipulated period. The risk of your capital and interest suffering greatly is, thus, reduced. Also, Fipbox provides the credit ratings of the banks and finance companies you are investing with so that you can know how financially stable they are. This allows you to make a better-informed decision.
3. No need for an early withdrawal.
In case of an urgent cash requirement after placing your Fixed Deposit, there is no need to request for a premature withdrawal. Fipbox can advise you on a set of smarter options! For example, you can simply apply for a loan against your Fixed Deposit. At times, you may get as much as 90% of the amount you opened the Fixed Deposit with. Plus, the time taken to process such a loan is a lot faster in comparison to any other form of personal loan.
4. Flexible interest rate options.
This is one of the most significant advantages you get from Fixed Deposits. Based on the term or period you choose for your Fixed Deposit, you can opt to receive your interest earned at different intervals. If the period is more than 1 year, for example, you can select from monthly, annual, or at maturity interest options. This decision needs to be considered prior to you placing a Fixed Deposit, and Fipbox helps you with this by presenting a comprehensive set of interest rates of all registered banks and finance companies.
Disadvantages of Fixed Deposit
1. Lower returns.
It is true that a Fixed Deposit will always give you a guaranteed return; however, it will be a lower return in comparison to short-term investment alternatives. But this needs to be assessed against your risk appetite.
2. Liquidity of invested funds.
As an individual or business requiring funds to be withdrawn frequently, Fixed Deposits might not be the best option for you. A savings account might be better suited for such a purpose. In order to withdraw money after placing a Fixed Deposit, a penalty will be charged for premature withdrawal. As such, you might receive a lower interest rate than the higher rate you enjoyed when originally opening the Fixed Deposit.
3. Tax Returns and WHT (Withholding Tax).
The interest income earned through your Fixed Deposit is not entirely tax free. According to the latest income tax act, which came into effect on the 1st of April, 2018, the tax on Fixed Deposits and Savings Accounts offered by Banks and Finance Companies has increased from 2.5% to 5%.
4. Fixed Deposits of senior citizens affected.
According to the latest income tax act, the revision of tax withheld increasing from 2.5% to 5% will also affect Fixed Deposits of senior citizens, if their interest income is above Rs.1.5 Million.