Higher education is one of the most significant investments that one ever makes. However, the rising cost of education can be a challenge for many. In such situations, planning out the finances becomes inevitable and among the safest options for investment is a Fixed Deposit (FD). An FD scheme for higher education can be a strong option for saving money because it is reliable.
Let us explore the characteristics and advantages of a fixed deposit for higher education and how it can become an effective financial instrument.
Features of an FD Scheme for Higher Education
Learn about the key characteristics of fixed deposits before you choose them to save for higher education.
1. Fixed Tenure and Interest Rates
A fixed deposit is characterised by its tenure. Generally, an FD account remains locked in for a particular period; it may be for months or years. This way, you can choose an FD tenure that suits your child's education aspiration, so funds will be available when the child requires them.
Also, the interest rates on the FD are fixed and do not change with market conditions like other investments. This does provide financial security, and it is easier to calculate the exact amount of money you would have at the time of maturity, so proper planning of education expenses could be made.
2. Premature Withdrawal Facility
Most FD schemes for child education offer this facility, though usually with a penalty attached. That feature is very handy when savings are withdrawn well in advance. Such needs arise unexpectedly. Therefore, the ability to withdraw from an FD before maturity adds a much-needed comfort level to one's finances.
4. Loan Against Fixed Deposit
Students can get loans against their FD, which can be of great use to fund higher education. Instead of going for an education loan, you can borrow part of the amount in an FD, usually 70-90% of the amount in an FD, at a lesser rate of interest. This allows you to continue earning interest on your FD while using the borrowed funds for education.
Benefits of Using Fixed Deposits to Finance Higher Education
Check out the benefits of FDs that make them an ideal option for growing your higher education fund.
1. Reliable Returns
Another advantage of a fixed deposit for higher education is that it offers reliable returns. An FD, of course, keeps the interest rate fixed, so you are certain about your returns at the time of maturity. From a long-term financial planning perspective, it would be helpful to calculate and save the exact amount required for future education costs.
2. Compounding Interest
Some fixed deposits earn compounded interest, which means that the amount of the interest earned is added to the principal, and further interest is calculated based on this new higher balance. This compounding advantage can grow the money you save over time. If you have long-term educational goals, like saving for a college education in 10 or 15 years, this benefit could be substantial for funding the education.
3. Diversification of Investment Portfolio
Fixed deposits are an excellent product for diversifying an investment portfolio. All other investments, like shares and mutual funds, give far higher returns but carry more risk. On the other hand, FDs, as an investment base, provide a reliable option for your savings. Diversification among asset classes would ensure that at least a part of your savings is saved and builds up steadily, something you want to save for future educational expenses.
4. Financial Discipline Builder
Fixed deposits have also been found to be a strong tool in building financial discipline since the money gets locked in for a period. Knowing that the amount is invulnerable until maturity and early withdrawal comes with penalties puts off some impulsive spending. For parents and students, this type of discipline can ensure that what has been set for education will stay intact and grow with time to coincide with future needs.
5. Not Affected By Market Fluctuations
Unlike equity-linked investments, fixed deposits are not prone to stock market or economic fluctuations. The predictability of FDs instils security, especially for those who are saving for critical future goals such as education. It makes FDs the reliable option during unforeseen financial difficulties.
IMPORTANT NOTE: The information provided about Fixed Deposit (FD) schemes for higher education is for general informational purposes only and may not reflect current offerings from all financial institutions. Features, interest rates, and benefits of FDs can vary between institutions and are subject to change. Tax benefits mentioned are based on current regulations and may be altered in future tax laws. |
Conclusion
Fixed deposits remain a go-to investment option for individuals and families planning for future educational expenses. They offer reliable returns and added benefits like loan facilities, which make it an ideal investment for funding higher education.
