Why Fixed Deposits are a reliable choice for your emergency fund:
- Safety and stability: FDs are not subject to market fluctuations, making them a low-risk investment. Banks are also heavily regulated and deposits up to ₹5 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), enhancing the safety of your funds.
- Guaranteed returns: With a Fixed Deposit, the interest rate is locked in at the time of deposit and remains unchanged throughout the tenure.
- Liquidity: When unexpected expenses arise, you can break your Fixed Deposit prematurely, often with minimal penalty, giving you quick access to your funds.
- Encourages saving discipline: The fixed tenure of an FD discourages impulsive withdrawals, helping you maintain your emergency fund intact until genuinely needed.
- High interest rates: Fixed Deposits often offer higher interest rates compared to regular Savings Accounts.
- Customisable tenure options: Fixed Deposits offer flexible tenure options, ranging from a few months to several years. For an emergency fund, you might opt for a shorter tenure with the option to renew.
- Tax benefits: Tax-Saving FDs, offer tax benefits under Section 80C of the Income Tax Act. While these FDs typically have a lock-in period of 5 years, they can still be a valuable component of your emergency fund strategy.
