Fixed Deposits or Money-Back Policies: Which Is Better
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A fixed deposit is a type of deposit in which a sum of money is locked for a fixed period of time. However, the tenure for the fixed deposit is decided by the person who invests his funds. This tenure could be anywhere from a few days to several years. In return for locking in these funds, fixed deposits pay the depositor a fixed rate of interest. All banks offer fixed deposits at different rates. Opening a fixed deposit is extremely simple and can be done both online and offline. To understand whether investing in a fixed deposit is the best option, we need to look at the advantages and disadvantages of a fixed deposit account.
Money Back Plan is a type of insurance plan that offers you life cover and the benefit of investments. When you buy a money back plan, you will receive monthly income during the policy period. Regardless of the market up and down, you will get the money as specified in your policy document. And in case you die, the insurer will pay a sum assured to your family, so they can be financially stable in case of your absence. Let’s learn more about the benefits of money back plans.
Advantages of Fixed Deposit
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Assured rate of return:
The major reason why people prefer investing their funds in a fixed deposit is the assured rate of return. Once you invest your funds in a fixed deposit account, you can be guaranteed of receiving the stated rate of return. Banks publish the fixed deposit rate of interest on their website and in bank branches which makes it easy for a customer to ascertain how much return he will get. Banks also have a fixed deposit interest calculator on their websites where a customer can calculate the interest he will receive on investing a particular sum of money for a particular period of time.
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Tax threshold for interest:
Banks are not mandated to deduct tax on any interest until it crosses Rs. 10,000. This means unless the total interest earned by a customer on different fixed deposits totals Rs. 10,000, the bank will not deduct any tax. This provides comfort to small deposit holders.
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Flexible tenure:
The tenure for a fixed deposit is flexible and depends on the deposit holder. Each bank has their own minimum tenure rules however, the final decision can be taken by the deposit holder. It is also possible to decide whether to redeem the fixed deposit or to extend it for the same period of time.
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Easy liquidation:
It is relatively easy to liquidate a fixed deposit. For FDs booked online, they can be liquidated online via net banking as well. Otherwise, most bank branches have a form to liquidate the FD.
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Loans against fixed deposit:
An FD is a dependable instrument to keep in case of financial emergencies. Taking a loan against a fixed deposit is very easy. You can take a loan up to 95% of the fixed deposit amount depending on the bank. This makes it a dependable investment.
Benefits of Money Back Plans
Buying a money back insurance plan means getting the below benefits –
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Death Benefit for Family
If you’re not around to provide financial support to your family, the money back plan will do so in that case. The money received will help your family meet their financial needs in your absence.
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Maturity Benefit Under Money Back Plans
Upon survival till the end of the policy term, you’ll receive a maturity benefit along with the applicable bonuses. And you can get this by paying all your due premiums. Using this money, you can meet your financial goals.
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Income Benefit
In case you survive till the end of the specified durations during the policy term, a percentage of the Basic Sum Assured shall be payable at the end of each of the 5th, 10th & 15th policy years. This may vary based on your insurer.
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Loan Option
You can borrow against your money back plan to meet your financial needs in case an emergency arises. This benefit is available only if money back plans a surrender value. And the same happens when you pay premiums for at least two years.
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Tax Benefits
The premium paid for the money back plan is deductible under Section 80C of the Income Act of 1961. However, your premium must be less than 10% of your chosen sum assured. And the payable sum assured will be tax-free under Section 10(10D) of the Income Tax Act of 1961, subject to prevailing tax laws.
Conclusion
Fixed deposits add to your habit of savings whereas money back plans are purchased out of caring and fear that your near and dear ones may face some risks in future.
Also read- Importance And Benefits Of Life Insurance
