Why should you make an emergency fund with a FD?

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Why should you make an emergency fund with a FD?

Why should you make an emergency fund with a FD?

Be it a health emergency, an urgent travel plan, or unforeseen expenses, circumstances like these can put immense strain on your finances. They can deplete your savings as well as cause disruption to your steady cash flow. An emergency fund is a part of your income that you set aside for urgent needs. It is the first thing you must invest in when you begin your savings—but keeping cash as your emergency fund is never a good idea. The best way to preserve an emergency fund is to invest in a fixed deposit scheme. Here’s why:

  1. Safe: A fixed deposit is one of the most reliable ways to invest. It has the highest safety rating of FAAA/Stable by CRISIL and MAAA/Stable by ICRA. People all around the country put their faith in fixed deposit schemes due to their stability and safety. It protects your hard-earned money from the uncertainties and fluctuations of the market. There is a guaranteed fixed return on your amount. So, your emergency fund is safe for urgent needs.
  2. Attractive Rate of Interest: Instead of making a cash fund, an FD is a better option for an emergency fund due to its high-interest rates. Your emergency fund will not only be safe but will also incur large sums as interest. It can also help you circumvent inflation which diminishes the purchasing power of your money. With an FD, you can accelerate the growth of your funds. You can search for financial institutions that are PNB Housing Finance best FD interest rates to avail the highest returns on your money.
  3. Flexibility: Fixed Deposits are a type of liquid investments. They offer you the flexibility to move them around according to your requirements. For example, you fix your emergency fund for five years. But a health emergency arises in one year. You have the option of withdrawing your money from the fixed deposit without any penalty. It takes a maximum of 24 hours to transfer the funds in your FD account to your regular savings account.
  4. Overdraft or Loan on FD facility: If an urgent requirement arises, but you want your Fixed Deposit to remain untouched, you have another option. A fixed deposit scheme allows you to take a loan on the FD, which means that the FD will stay as collateral and it will keep incurring interest. If you have enough cash-flow, you can pay off this loan through easy monthly installments. In this manner, your emergency fund will be safe, and the requirement will be filled.
  5. Can be Tailored to Your Requirements: You can choose the best-fixed deposit scheme which fits your requirements. If you want a periodic payout option to cater to a temporary cash-flow emergency, an FD allows that. You can also choose to ladder your investments to maximize your cash liquidity as per your convenience.

A fixed deposit scheme is the best way to invest and preserve an emergency fund. But it would help if you remembered that this fund must only be touched in times of emergencies.

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