Things to consider while investing in Fixed Deposits

A fixed deposit is one of the most popular and secure investment instruments which offers a higher rate of interest and assured returns than regular savings or a current account. The interest rate on fixed deposit can go up to as high as 9%. In addition, it’s quite easy to open a fixed deposit account. In the below article, we have mentioned some important tips that you must consider while investing your hard earned money in a fixed deposit:

Interest offered as per tenure: Choosing a fixed deposit is based on two important parameters – interest rate and tenure. The interest rate varies for senior citizens and people below the age of 60. It is also dependent on tenure. Presently, the interest rate ranges between 3.15% and 9% per annum for a tenure ranging from 7 days to 10 years. For senior citizens, the interest rate offered is 0.5% higher than the regular rates offered by the banks.

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The credibility of the FD provider: Another important aspect while opening a fixed deposit account is the credibility of the bank. There are basically two types of FDs – bank FDs and company FDs. In case, you are investing in bank FDs, an amount of Rs. 1 lakh is secured under the depositor insurance programme by DICGC. On the other hand, if you are investing in company FDs, make sure to check the credit rating of the company.

Compare interest rates via fintech lenders: Before opening a fixed deposit account, make sure to compare different banks as different banks offer varied interest rates on their fixed deposits. You can visit the websites of various fintech lenders such as MyLoanCare, and compare interest rates of fixed deposits offered by banks for different tenure. Choose the bank that offers high-interest rate for the amount and tenure that you want to invest.

Go for a lender with a simple application procedure: While selecting a lender, ensure that the application procedure matches your preferences. Also, ensure that the steps are minimal and you are not required to submit many documents or forms. The application procedure varies from one lender to another. While some lenders offer you to fill the application form online, some do not provide online application facility and require you to file your form by visiting the branch.

Cumulative vs non-cumulative FD: While opting for an FD account, you get the option to choose between cumulative FDs and non-cumulative FDs. In case of cumulative FDs, you have the option to reinvest the interest earned in a regular interval to get the compounding benefit and the entire interest is paid at the end of the FD tenure. Talking about non-cumulative FDs, the interest is paid out in a regular interval i.e. monthly, yearly and so on. So, if you are looking for a long-term investment option, cumulative FDs are suitable.

Premature withdrawals: You have the option to withdraw prematurely before the end of the tenure. But to do this, you are required to pay a penalty on the same. It ranges from 0.5% to 1%. If the interest on FD is 7% and the penalty on premature withdrawal is 1%, then you’ll be paid interest at a rate of 6%, depending on the duration. Different banks have different penalty amounts for their investors. There are a few banks that have started to offer FDs without the option of premature withdrawal for a higher minimum amount and interest rate.

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So, before you open a fixed deposit account for yourself, make sure to check the above-mentioned points to make an informed decision. Compare interest rates offered by different lenders, and choose the one that comes at a higher interest rate.

SEE ALSO: WHAT IS BETTER? BONDS OR FIXED DEPOSITS

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