Fixed deposits are among the most preferred investments for Indians, with reports estimating how Rs. 17.55 lakh crore was invested in FDs between April 2023 and January 2024. If you are also looking to invest in an FD to grow your wealth, here are some pointers to help you select the right one for your future needs and aspirations.
What to Consider While Choosing a Fixed Deposit
Here are some of the factors worth considering while choosing fixed deposits.
- Interest Rates- What are the prevailing bank FD rates? Take a look at the same and then compare across multiple financial institutions. The objective should be to avail of the highest possible rate for your deposit since it will make a big difference to your interest earnings.
- Tenure- Should you opt for a short term fixed deposit or a long-term one? It all depends on your financial goals and the kind of corpus you want to amass.
- The reputation of the Bank- Always check the bank or financial institution’s reputation, cross-checking overall credibility through their fixed deposit ratings from CRISIL (FAAA) or ICRA (MAAA), among other agencies.
- Type of FD- There are cumulative fixed deposits with annual compounding and the total amount is paid out on maturity. This is a better option if you want to grow your money significantly to meet long-term goals. However, if you are okay with slightly lower interest earnings and want a steady income stream from FDs, you may choose non-cumulative FDs, i.e. those with quarterly or monthly interest payouts.
- Overdraft Features- It is advisable to choose a bank that offers an overdraft facility on fixed deposits. This ensures that if you face any financial emergency in the future, you will not have to break your FD for this purpose. Your deposit will keep earning interest, while you can withdraw a portion of this amount as your overdraft. The bank will charge interest only on the amount withdrawn and you can repay it conveniently over a specified duration.
- Charges and Penalties- Take a closer look at the bank charges for setting up and maintaining the FD. Also, check the penalties imposed in case of premature withdrawals. These differ across different traditional and small finance banks.
- Process- Check whether your chosen bank or financial institution has a seamless FD process with minimal documentation. For example, if you do not have time to visit the branch, then an online process will undoubtedly benefit you.
These pointers will serve as a ready reckoner when you select the best fixed deposit for your future needs.
Conclusion
Fixed deposits are safe and risk-free investments that will help you accumulate sizable wealth if you start early. They come with decent interest rates and several other advantages for investors. At the same time, FDs are also great choices after retirement, especially if you want a regular monthly income. It all depends on your specific requirements and financial goals like the higher education of children, buying a house, and more. Invest only after comparing the rates and also taking inflation-adjusted returns into account. You can use online FD calculators to work out the estimated returns.
