When it comes to long-term savings, fixed deposits are a popular option among investors. A fixed deposit is a financial instrument that allows you to invest your money with a bank or financial institution for a specific period, which can range from a few months to several years. In return for your investment, you receive a fixed rate of interest at the end of the tenure.
Long-term savings refer to setting aside a portion of your income for a significant period, usually five years or more, to meet future financial goals such as buying a house, funding your children’s education, or planning for retirement. By investing in fixed deposits for long-term savings, you can enjoy several benefits that make it a wise choice.
Read on to have a clear understanding of the benefits of choosing fixed deposits as a long-term savings option.
- Guaranteed Returns and Low Risk
Fixed deposits offer guaranteed returns and low risk, making them an excellent choice for long-term savings. With a predetermined interest rate, you can plan your finances and have a reliable source of income in the future.
Fixed deposits have minimal risk and are not affected by market fluctuations unlike stocks or mutual funds, making them a safe choice for risk-averse investors seeking stable and predictable returns, unlike stocks or mutual funds.
- Higher Interest Rates for Long-term Deposits
Long-term fixed deposits typically offer higher interest rates than short-term ones, as banks and financial institutions can use the funds for a longer duration and offer a more significant return on investment.
However, it’s crucial to consider risk appetite and financial goals before choosing tenure. While longer tenure may offer higher returns, it also means funds will be locked in for an extended period. To make an informed decision, compare interest rates offered by different banks and financial institutions to choose the one that best suits your needs.
- Flexibility and Liquidity
Fixed deposits offer flexibility in terms of tenure and deposit amount, making them a versatile investment option for long-term savings. You can choose the tenure and deposit amount based on your financial goals and risk appetite, allowing you to customise your investment according to your needs.
In addition, fixed deposits provide liquidity options that can help you access your funds in case of emergencies. While designed for long-term investment, premature withdrawal may result in a penalty or lower interest rate than the original offer.
You can also take a loan against your fixed deposit. The loan amount is typically a percentage of the fixed deposit’s value, and you can continue to earn interest on the remaining amount.
- Tax Benefits
Dubai is known for its favourable tax regime, and fixed deposits are no exception when it comes to tax benefits.
Fixed deposits in Dubai offer tax-free returns for up to 5 years, making them an effective savings option. However, any interest earned from fixed deposits is subject to Tax Deducted at Source (TDS) as per UAE laws. The TDS rate depends on the deposit amount and period, with a 10% rate for deposits below AED 250,000 or less than 1 year, and a 5% rate for deposits exceeding AED 250,000 or more than 1 year.
In conclusion, fixed deposits in Dubai can be a valuable addition to an investor’s long-term savings strategy, providing a safe and secure investment option that can help them achieve their financial goals. By understanding the benefits and risks of fixed deposits and choosing the right tenure, investors can make the most of their investments and secure their financial future.