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Fixed Deposits

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Fixed Deposits

FDs are one of the oldest and most common methods of investing. When it comes to assured returns, choosing the right type of savings scheme makes all the difference. Fixed Deposits let you make the most of value-added benefits as you create wealth at low risk. Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits.

Types Fixed Deposits:

Standard FDs

Here, the investor parks his money in the FD account for a fixed term that ranges from 7 days to 10 years. The fixed and pre-defined interest rate is higher than a regular savings account. You can avail of loan and overdraft facilities against standard FDs. You can also withdraw your money before the account matures, though you will be penalised.

Tax-saving FDs

These FDs have a mandatory lock-in period of five years, so you cannot withdraw your money prematurely. Moreover, loan and overdraft facilities are not available against tax-saving FDs. But you can claim tax exemptions of up to Rs 1.5 lakh under section 80C of the Income Tax Act.

Cumulative FDs

The interest on these FDs gets compounded as per the interval of your choice. The interest is added to your investment amount and will be paid on the maturity of the FD.

Non-cumulative FDs

With these FDs, you can choose the regularity at which the interest is paid out. It is a good investment for those looking for a regular source of income.

Senior citizen’s FD

These are for people above 60 years old. They offer better interest rates than Standard FDs. The tenure here can range from 10 days to 10 years.

Flexi FDs

These FDs offer you the convenience and flexibility of an FD and a savings account. They merge the features and benefits of FDs and savings accounts, so you get the higher interest rates of FDs plus the liquidity of savings accounts.

How to choose the right Fixed Deposit?

Interest rate

Choose a bank that offers you a high-interest rate on your FD account. Interest rates differ from bank to bank; longer tenures often attract higher interest rates. The interest rate may also vary depending on your age, as senior citizens get an additional interest rate.

Loan facility

One benefit of FDs is the loan facility that they offer. Investors can get up to 90% of their deposit as a loan. You may want to choose an FD account that gives you the highest value against your FD. And, of course, make sure you opt for an FD where a loan facility is possible in the first place.

Lender’s credibility

FDs are relatively risk-free but always check the credibility of the bank where you wish to invest. When selecting an FD, look at its CRISIL or ICRA ratings. FAAA is the highest rating given by CRISIL and MAAA is the highest rating given by ICRA for credit quality.

Premature withdrawals

There could be occasions that will require you to withdraw money from your FD account prematurely. Banks charge a penalty by lowering the interest rate by 0.5% to 1% when this happens. Select a bank that imposes a low penalty on premature withdrawals.

Cumulative vs. non-cumulative

If you do not require regular passive income from your FDs, then you may want to choose cumulative FDs. The interest component on these FDs increase because of the power of compounding. This is a great way to earn better returns on your FD investment.

  • Equity without income is unnatural.
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