Finding the best investment scheme might be a challenging endeavor for an Indian investor. After all, there are so many options, such as FD, mutual funds, equity, bonds, debentures, commodities, sovereign investment schemes, etc., to choose from.
Traditionally, fixed deposit schemes have garnered the maximum response from investors.
However, with FD interest rates nosediving every passing day, investors are slowly opening up to alternative investment methods. But probably no other investment option provides as much flexibility with high returns as a fixed deposit.
This article discusses the factors you should consider before opening an FD account, providing the best interest rates.
5 Factors You Must Consider Before Opening a Fixed Deposit Account
Tenure
You can invest in a fixed deposit for any duration between one year and ten years. Generally, a longer tenure fetches the best FD interest rates. However, you need to select the tenure carefully since premature closure attracts a hefty penalty between 1% and 2% of the withdrawal amount. A better idea is to ladder your investments by investing in fixed deposits of varying durations. Laddering your investment allows you to benefit from high capital appreciation and adequate liquidity.
Interest Rate
FD interest rates depend on multiple factors, including the financial institution’s credibility, RBI’s policy rates, macroeconomic factors, etc. Public sector banks usually offer the lowest rates, while housing finance companies, such as PNB Housing Finance, provide the highest rates. For example, PNB Housing offers up to a 6.95% interest rate per annum, and the yield to maturity can go up to 9.13%. Hence, before investing in a fixed deposit scheme, you must evaluate the interest rate and decide the investment amount.
FD Scheme’s Nature
Broadly, fixed deposits are of two types – cumulative and non-cumulative. When you invest in a cumulative FD, the principal remains locked, and the interest accumulates until maturity. You can withdraw the lump sum amount after maturity. In contrast, a non-cumulative fixed deposit supplies you with the interest amount at periodic intervals. The payment frequency may be monthly, quarterly, half-yearly, and annually.
Senior Citizen Benefits
Senior citizens often choose government schemes, such as PMVVY, SCSS, and P.O.MIS, for investing their hard-earned money. For senior citizens, it is recommended to have FD as a one of the personal finance option. However, the invested amount remains locked until maturity, and there is hardly any way to access the funds when you need them urgently. A fixed deposit, on the other side, is more flexible. Senior citizens can earn an additional 0.25% interest rate by investing in a fixed deposit. Moreover, you can withdraw the amount whenever you feel the need.
Value-Added Benefits
Presently, you can get something extra from a fixed deposit. For instance, financial institutions like PNB Housing Finance offers doorstep service, where you can invest and get the best FD interest rates without moving an inch. Moreover, you can get the maturity proceeds automatically in your account and can renew it if you wish. You can also get a no-TDS interest income up to INR 5,000 every financial year.
Conclusion
FD interest rates are relatively more stable than most other high-yield investment instruments. Invest in a corporate fixed deposit to achieve your financial goals quickly.