Fixed deposits stand out as a reliable and secure investment option. They offer a stable way to grow your savings while providing a safety net for your funds. But, there is another lesser-known benefit that fixed deposits can offer. It is the ability to secure a loan against them. This dual advantage of fixed deposits helps you save your income. It also allows you to access funds when needed through a loan on fixed deposit.
Fixed Deposits Explained
Fixed deposits are generally offered by banks and financial institutions. When you invest in a fixed deposit, you agree to deposit a sum of money for a specific period. You agree to do this at a predetermined interest rate provided by the institution. This amount remains locked in for the duration of the deposit. Premature withdrawals may result in penalties which need to be borne by the investor. Banks and financial institutions provide you with a guaranteed return at the end of the term.
Benefits of Fixed Deposits
- Stability and Security: Fixed deposits offer a fixed rate of interest and are not subject to market fluctuations.
- Assured Returns: Other investments have an unpredictability when it comes to returns. But, the returns from fixed deposits are usually known in advance. This provides a sense of security and predictability.
- Flexible Tenure: Fixed deposits come with various tenure options. This allows you to choose a period that suits your financial goals.
Loans Secured Against Fixed Deposits
One of the lesser-known benefits of fixed deposits is the ability to secure a loan against them. When you have a fixed deposit, you can use it as collateral. This helps you to get a loan from the same bank or financial institution where the deposit has been made. This type of loan is known as a loan on fixed deposit.
Benefits of Loans on Fixed Deposits
- Low Interest Rates: The fixed deposit acts as a security. It means that these loans often come with lower interest rates. When compared to unsecured loans, these loans offer favourable interest rates.
- Quick Approval: Loans secured against fixed deposits are usually processed faster. This is because the collateral reduces the risk for the lender.
- Maintain Investment: A loan on fixed deposit lets you access the funds you need. You get these funds without breaking your investment. This allows it to continue earning interest without any hassles.
How to Secure a Loan on Fixed Deposit
Securing a loan against your fixed deposit is a straightforward process. You need to approach your bank or financial institution of choice. Then, request a loan against your fixed deposit. The amount you can borrow is usually a percentage of the value of your fixed deposit. Once approved, the funds get disbursed. Your fixed deposit continues to earn its interest as usual.
Things to Consider
- Loan Amount: The amount you can borrow against your fixed deposit is usually a percentage of its value. Ensure you understand the terms and conditions before availing the loan.
- Interest Rates: Loans on fixed deposits offer lower interest rates. But, you need to compare them with other loan options to ensure you are getting the best deal.
- Repayment Terms: Understand the repayment schedule. Ensure you can comfortably meet the repayment obligations to avoid any penalties.
Fixed deposits provide a secure way to grow your savings. They also offer the added advantage of securing a loan against them. This dual benefit can be a valuable tool in managing your finances. It provides you with access to funds when needed. It doesn’t compromise the growth of your investments. Understand the concept of fixed deposits and loans secured against them. This can help you make informed financial decisions. You can then choose a loan which aligns with your goals and aspirations.
