Top 6 Things to Know Before Investing in Fixed Deposit Account



Fixed Deposit is an investment venture wherein the investors put their money for guaranteed returns. It is a risk-free source of investment facilitated by most of the banks, post offices and NBFCs.

Investing in an FD account enables the investor to achieve his desired goals and fulfil the basic necessities. However, the investor must be well assured of his financial decision and examine all the factors affecting it. FDs has proved to be the most trusted option undoubtedly but in order to make a promising decision, you must know the following things. 

Top 6 things to know before investing in fixed deposit Account

 The significant factors to be considered while investing in a fixed deposit account are:-


1.    Rate of Interests 

Higher returns come from high interest. And the FD interest rates vary from banks to banks and NBFCs to NBFCs. Go for the banks and NBFC that offer highest fixed deposit interest rates. 

Getting highest fixed deposit interest rates additionally relies upon the sort of FD picked. In a Cumulative FD, a lump sum amount will be obtained after maturity while for non-cumulative FDs you get fixed interval payout. Interest earned in Cumulative FDs is higher because of the power of compounding. So, investors looking for highest fixed deposit interest rates must go for cumulative FDs.

Interest rates also depend on the type of customer you are. All banks offer an additional rate of 0.25 to 0.5 per cent to the senior citizens on all tenures. The given table shows the reputed banks and NBFCs rates of interest with different tenure options:

Name
Tenure of 1 year
Tenure of 3 years
Tenure of 5 years
SBI
5.25%
6.00%
6.25%
ICICI
4.00%
6.5%
6.5%
Citi Bank
3%
5%
5%
Axis Bank
3.5%
6.7%
6.7%
HDFC Bank
3.5%
6%
6%
Canara Bank
4.20%
6.20%
6%
HDFC Bank
3.5%
6%
6%
Bajaj Finance
7.6%
7.6%
7.6%
PNB Housing Finance
7.2%
7.3%
7.3%
IDFC First Bank
4%
4.5%
4.6%

Going through this, you find that Bajaj Finance offers the highest fixed deposit interest rates in India. And you can start investing in Bajaj Finance Fixed Deposits with as little as Rs. 5,000 and enjoy the highest fixed deposit interest rates up to 7.85%



2.    Tenure

Owing to different goal requirements, you need to invest differently. Consider the bank or NBFC which provides you with the flexibility of choosing the duration of your fixed deposit. The tenure of an FD account ranges from 7 days to 10 years. Choosing a longer tenure will yield the highest fixed deposit interest rates.


3.    Risk Factor

Reviewing the credibility of the FD provider must be the foremost priority for an investor as it gives assurance of its reliability. This can be done by checking the safety rating held by them.  Agencies like CRISIL and ICRA grant these ratings. The below table shows the credibility of some Private BANKS & NBFCs.

Name
Rating
Period
Rate of Interest
Bajaj Finance Ltd
FAAA by CRISIL, MAAA by ICRA
3 years and above
7.85% 
GRUH Finance Ltd
AAA by CARE and FAAA by BWR
1 year
7.25%
DHFL Aashray Deposit Scheme
FAAA by CRISIL, MAAA by ICRA
1 year

7.70%
HDFC Premium Deposits
FAAA by CRISIL
15 months
7.15%

    
With ICRA’s MAAA (stable) rating and CRISIL’s FAAA (stable) rating, Bajaj Finance Fixed Deposit is the safest investment option to park your savings.



4.    Fluctuation in FD rates

The elemental reason to know about FD before investing is fluctuation in FD rates which occurs from time to time. There are two main reasons on which fluctuation of FD rates depends:


     Recession:- During the recession, the growth of the economy is at a very slow pace. So, RBI has to reduce the FD interest rates in order to boost the borrowing power of the account holders. For example, nowadays, to cope up with the recession, most of the banks and financial institutions have sliced the rates of FD and hence the maturity value on these deposits has declined. 


     RBI norms:- RBI is called the banker of banks. It regulates and monitors the activities of all other banks. Changes in interest rates of any financial product are done by the RBI. For example, the latest announcement about FD rates of all banks is topped by RBI cutting the repo rate and reserve repo rate by 75 basis points and 90 bps, respectively were 100 basis points/bps = 1 per cent. The repo rate now stands at 4.4% and reverse repo rate at 4%. It later announced a further cut of 25 basis points (100 basis points/bps = 1 per cent) in the reverse repo rate to 3.75% from 4% earlier while coping with the recession.


5.    Tax saving FD

While choosing a tax-saving FD, the investor can get a tax deduction u/s 80C of the Indian Income Tax Act,1961 which can be up to a maximum amount of Rs.1.5 lakh. Tax-saving FD occurs with a lock-in period of 5 years making it easier for the investor to achieve a desired goal in the same duration. The interest rate varies from 5.5% – 7.75%.


6.    Application procedure & Penalty rates 

Since different banks and NBFCs have different application procedures, the investor must opt the one which offers online FD, has a hassle-free process and involves less effort. 

Pre-mature withdrawal of a physical or an online FD makes you liable to pay penalty charges becoming another factor to be considered before investing. You should know whether your lender charges a penalty or not and know the amount, in case it does.

Now that you know the ins and outs of investing in an FD we hope you get the best out of it. Best of luck!

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