Emergencies come unannounced. They can throw a spanner in your financial plans and can force you to make rash financial decisions. An emergency fund helps soften the blow of unfortunate events such as a job loss, a sudden medical expense, or urgent home repairs. One of the best ways to build an emergency fund is through Fixed Deposits (FDs).
Let’s explore why fixed deposits make a great addition to your emergency fund.
Stability and guaranteed returns
Fixed deposits are synonymous with stability. When you invest in an FD, your money earns a predetermined interest rate for a set period. This means you know exactly how much your money will grow, unlike investments linked to the ups and downs of the market. This makes FDs the perfect place to park funds for emergencies.
Liquidity matters
While you want your emergency fund to grow, you also need the money to be accessible. Fixed deposits offer a reasonable level of liquidity. Most banks allow premature withdrawals of fixed deposits. Yes, you may pay a minor penalty or earn lower interest, but having your money when you need it is critical in an emergency.
Your money is safe
The main goal of an emergency fund is to keep your money safe while allowing some growth. Fixed deposits are a secure investment option where your initial investment is protected. Your money is guaranteed to be there for you when you need it most.
Diversifying your emergency savings
It’s never a good idea to keep all your eggs in one basket. Your emergency fund should also be diversified for maximum safety. Combine a fixed deposit with a liquid savings account and perhaps some cash at home. This ensures you have multiple places to turn in a crisis.
Earning interest on your savings
The beauty of fixed deposit interest rates is that you can shop around to find the best rates on offer. This enables you to grow your emergency fund faster. The longer you leave your money in an FD, the more interest on your fixed deposit you will earn.
FDs promote saving habits
Saving money takes discipline, especially when there are so many temptations to spend it! Fixed deposits lock in your funds for a set period. This forces you to set money aside and leave it to grow. They’re a great way to stick to your savings goals for emergencies.
Important considerations
- Interest rates: Look for high fixed deposit interest rates to make the most of your funds. For instance, INDIE Fixed Deposits by IndusInd Bank offer a competitive interest rate of up to 7.75% p.a. The best part is that you can seamlessly open an FD on the INDIE app within a few minutes and the process is 100% digital.
- Tenure: Choose the fixed deposit tenure that aligns with how quickly you think you may need the money.
- Penalties: Be aware of premature withdrawal penalties specific to your FD scheme.
The bottom line
Fixed deposits are valuable for building a strong and reliable emergency fund. Their stability, accessibility, and potential to grow your savings make them perfect for your emergency preparedness strategy.
