Successful financial planning requires you to invest a portion of your investment portfolio into safe and low-risk investment options for multiple reasons such as to balance out the risk, quick access to cash, and to easily sail through difficult times. Fixed deposit is one such safe investment option that is most popular among investors of all ages owing to its lower risk and guaranteed returns. Fixed deposits are offered by banks and Non-Banking Financial Companies (NBFCs). Interest rates vary depending on the tenure and also from one financial institution to another. Fixed deposits are simple and easy to invest in with an easy renewable facility. As several financial institutions offer fixed deposits with good features at an attractive rate of interest, it is important to consider various factors while choosing the right FD that can match your investment strategy.
Here are the top five important things to check while choosing the right FD for yourself
Comparison is the key to choosing the right FD for yourself. You can compare the numerous fixed deposit plans offered by various financial institutions by checking the following factors:
1 - Rate of interest
The fixed deposit interest rate depends on the tenure you choose, banks or the financial institution you opt for, and your age. Even for the lump sum, high-value deposits, fixed deposit interest rates may differ. Fixed deposit interest rates are decided by the institution based on the guidelines issued by the Reserve Bank of India within the limit prescribed in it. You can compare the fixed deposit interest rates of the various institution for the tenure chosen while choosing the right FD. You can even calculate the difference in interest amount using the fixed deposit calculator available online. All you need to do is log on to the online fixed deposit calculator and input all the details such as the amount of investment, rate of interest (in %), interest frequency, fixed deposit tenure, and your senior citizen status (yes/no) to calculate the interest amount and the maturity amount on the particular fixed deposit. This tool is extremely valuable that helps you in decision-making.
2 - FD tenure
Before you invest in a fixed deposit, you need to carefully decide the duration depending on your requirement. You can invest in FD for short-term goals that are a few months or a year away and you can also invest for longer durations like 5 years to 10 years. However, deciding the tenure should be based on the time duration that you have for reaching your financial goals. Tenure can be based on the purpose of your investment.
3 - The credibility of the institution
Irrespective of the bank/NBFC you choose, a fixed deposit is a relatively safe investment option that also comes insured at an amount of INR 5 lakhs. However, it is essential to do a background check while making any investment decision. You can check the credibility of the bank or the financial institution you are choosing by going through the credit ratings given by the credit agencies like CRISIL and ICRA based on various criteria. This gives you an outlook of the bank’s stability and credibility. Opting for institutions with higher ratings can assure you peace of mind while you enjoy guaranteed and stable returns.
4 - Withdrawal Norms
While you are investing in a fixed deposit, it is important to know the withdrawal norms. There are some institutions that charge penalties on pre-mature withdrawals. Some banks offer a flexible fixed deposit that you can withdraw anytime without penalty. It is important to compare the fixed deposits based on the amount or percentage of penalty charged. To be a wise investor, you need to be aware of minute things and conditions related to the investment.
5 - Cumulative Vs non-cumulative
You can choose to invest in either cumulative or non-cumulative fixed deposits. Cumulative fixed deposits are the fixed deposits in which the interest earned on the investment is reinvested and the interest gets compounded. On the other hand, non-cumulative fixed deposits pay out the interest at a chosen frequency and the interest paid out would be based on the simple interest formula. You can calculate the amount of interest in both cases using a fixed deposit calculator for making better decisions.
6 - Loan facility
Many banks and NBFCs offer a fixed deposit with the loan facility. In case you need to meet an urgent liquidity requirement, you can opt for this facility of availing loan against FD, which is quite simple and convenient. However, you need to be aware of the terms and conditions that are applicable. You can compare and choose the FD when you know the terms applicable.
-- Choose the right fixed deposit that matches your need and financial goal! --