Are interest rates the only factor to choose a fixed deposit. Here’s a quick guide on other important factors you should consider while choosing an FD scheme
Bank FDs come with some limitations such as premature withdrawals are not usually allowed or come with a penalty.
Fixed deposits are one of the most preferable and popular deposit schemes in the country. For tenures between 1 and 10 years, fixed deposits currently fetch interest rates ranging from 5.50 to 6.50 percent.
Fixed deposits are popular because of the safe and secure nature of the investment. The principal amount is invested at a fixed interest rate and interest gain on the deposits accrues and grows over time when one invests in an FD.
From as low as 7 days up to 10 years, FDs offer a wide range of tenures. Bank FDs come with some limitations such as premature withdrawals are not usually allowed or come with a penalty.
While comparing the FDs available in the market, there are a few factors that you must consider
–Interest: The interest rates are offered by banks based on tenure. The interest rates also vary from bank to bank. It also depends on the age of the depositor. Bulk or lumpsum deposits attract a higher rate of interest. 0.5 percent higher interest rates than the regular rates are offered to senior citizens. The FD interest rate remains the same for the entire tenure of the investment.
–Loan: One of the major benefits of this fixed deposit scheme is that it offers a loan facility to investors. One can avail of loans against FDs, up to 90 percent of his/her own deposit during any financial emergency. As the maximum tenure is restricted up to the maximum tenure of the FD then the tenure of the loan can be up to the maximum tenure of the FD scheme.
–Credibility of the bank: Under the depositor insurance program by DICGC, FDs are secured and under this an amount of Rs 5 lakh is insured. One can also refer to the credit rating of a bank to get a better idea. Investors could break the investment amount into different banks to reduce their dependence instead of putting all the money in one FD.
–Premature withdrawal: Before the end of the tenure, investors need to pay a penalty to liquidate their FD investment. The penalty is usually charged by lowering the applicable interest rate by 0.5 percent to 1 per cent by banks. Even though some banks allow investors to break their FDs prematurely without penalty, there are additional criteria that need to be met. One should look for banks that impose a low penalty on premature withdrawals while selecting a bank.
–Cumulative vs. Non-Cumulative: One can re-invest the interest earned on a regular interval with a cumulative FD, wherein the compounding benefits and the accumulated interest is received at maturity or the end of the tenure. The interest is credited in the account on a regular interval, either monthly or yearly, in the case of a non-cumulative FD on the other hand.
