In the post-COVID world, investments are more important than spending. Investments give you a sense of security. The funds can come in handy, especially when you face a financial emergency. Hence, it's high time you allocate a portion of your monthly earnings to create a corpus which can be your source of income during a financial emergency.
In the post-COVID world, investments are more important than spending. Investments give you a sense of security. The funds can come in handy, especially when you face a financial emergency. Hence, it's high time you allocate a portion of your monthly earnings to create a corpus which can be your source of income during a financial emergency.
But, with interest rates on a downward slope, getting inflation-beating returns can be challenging. However, that is the case with banks. Many housing finance companies like PNB Housing offer not only high interest rates on fixed deposits but also complete security.
This article lists down the benefits of creating an emergency corpus with a fixed deposit.
High Interest Rates
While all fixed deposits have the same purpose, that to offer you an appreciation of your capital, not all fixed deposits offer the same interest rates. There are three ways to invest money in a fixed deposit - banks, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs). Generally, bank fixed deposit interest rates are the lowest, followed by NBFCs. If, however, you want to get inflation-beating returns, opting for an HFC FD may be the best choice.
Housing finance companies like PNB Housing offer fixed deposit interest rates as high as 6.70%, with a 9.13% yield to maturity.
Hence, a fixed deposit can give you stress-free money to tide over a financial emergency.
Optimal Safety
When you opt for a bank fixed deposit, an amount of up to INR 5 lakhs is insured. Although a housing finance fixed deposit does not come with such an assurance, when you choose a fixed deposit with CRISIL FAA+ rating, your money is one hundred percent safe. A high CRISIL rating indicates that the company has a healthy balance sheet and never defaults on interest payments.
Hence, a fixed deposit enables you to save money for the future safely and securely.
Simple Documentation
Opening a fixed deposit is reasonably simple. When you open a fixed deposit account with a bank, they typically ask you to create a savings or current account at first, where the interest amount would get credited. However, if you choose a housing finance company, you do not need to create any special account. You can fill-up the application form, attach documents like PAN card, Aadhar card, and a photograph, along with the cheque, and submit the application form at the nearest branch of the company. The interest amount will be transferred to your bank account on the dates mentioned in the fixed deposit certificate.
Hence, a fixed deposit allows you to withdraw the money through ATMs and use it for meeting your financial demands, without creating any special account.
Exceptional Liquidity
An emergency fund must be easily accessible. As a financial emergency comes without warning, getting funds at short notice can be a life-saver.
When you open a fixed deposit, the financial institution allows you to withdraw money before the end of the tenure. Although when you exercise this option, the financial institution reduces the fixed deposit interest rates (also known as cancellation penalty) and gives you the remaining amount.
Hence, you can break your fixed deposit funds anytime you wish to and tackle an emergency without any stress.
Conclusion
Fixed deposits enhance the value of your hard-earned money. If you select a fixed deposit with high interest rates, you can earn more and be worry-free. And, such an assurance can enable you to deal with a future emergency without any stress.
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