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The Insightful Investor’s Guide to FD Rates

Investing in a fixed deposit scheme will not only help you save money but will earn you FD interest as well. FD interest rates are relatively risk-free and assure you a guaranteed return. You make a one-time payment (while opening the FD account) for a fixed tenure. Depending upon the bank, the amount deposited and the tenure of investment, the fixed interest rates differ. On the completion of the maturity period, the accrued interest is calculated with the help of an FD interest calculator. The principal amount, along with the total interest amount, is then paid back to the depositor.

Different types of FD schemes available

Normal FD

  • Traditional fixed deposit scheme
  • Tenure ranges from 7 days to 10 years
  • Opening a separate savings account is not necessary
  • Accumulated interest rates might vary from 4% to 7.5%
  • Interest received is higher than that in a savings account

Tax-saving FD

  • Have a fixed lock-in period of 5 years
  • A lump sum amount can be deposited initially
  • Offer exemption up to Rs. 1.5 lakh per annum
  • Interest amount can’t be withdrawn in the lock-in period

Senior citizen FD

  • Offers flexible tenures
  • Applicable to individuals above the age of 60 years
  • Rate of interest ranges from 0.25% to 0.65% and is higher than the existing rate of interest

Cumulative FD

  • No fixed rate of interest under this scheme
  • Interest rates compound quarterly or yearly
  • Total interest amount paid at the time of maturity

Non-cumulative FD

  • Best suited for pensioners or retired individuals
  • Appropriate for those seeking a regular source of income
  • Interest amount paid as per investor’s convenience (monthly, quarterly, half-yearly or annually)

How to choose the best fixed deposit?

Investing your hard-earned money in investment comes with the concern of financial security. Consider the following points before you put your money in an FD:

  • Conduct thorough research before investing and look for a financial institution that offers a reasonable rate of interest. FD interest rates may vary from bank to bank. Axis Bank and SBI can have different rates from HDFC Bank FD rates.
  • Depending upon the build-up corpus or return on maturity, choose wisely whether you wish to opt for a cumulative or non-cumulative FD scheme.
  • Check the credibility of the bank you wish to open an FD account with. An F triple-A CRISIL rating of a fixed deposit is considered fairly good and is advisable.

Why do fixed deposit interest rates keep fluctuating?

  • The demand and supply conditions for credit are a major cause of fluctuating FD interest rates.
  • A cut in the lending rates or any anticipated changes in the existing monetary policy can cause FD interest rate fluctuations.

Advantages of investing your money in fixed deposits

  • Involves no risk
  • Offers a good return
  • Assured rate of interest on returns
  • Loan facility available in some FDs
  • No limit on investment amount
  • Interest rate higher than that in a savings account
  • The initial investment amount is exempted from taxation
  • Flexible tenures ranging from 7 days to 10 years
  • Online FDs have the option of auto-renewal
  • An individual can hold multiple FD accounts
  • FD investments remain secure despite market fluctuations
  • Senior citizens can avail of increased interest rates
  • There can be individual or joint FD holders
  • FD accounts can be transferred from one bank branch to another
  • Fixed deposits are open to individuals as well as to private companies

Factors to consider before investing in an FD account

Account opening

Terms and conditions differ from one bank to another. Some banks allow you to open an FD account with them even if you don’t have an existing savings account in the same bank. Other banks might not provide you with this leverage. In such a case, go through the KYC (Know Your Customer) process to open an FD account in the bank without having savings account with them.

Minimum deposit amount

Banks have varied minimum and maximum deposit limits. Check with multiple banks for the upper and lower limit of investment amounts before you opt for an FD scheme from a specific bank.

Interest rates

Banks that provide higher interest rates on fixed deposits must be chosen. Higher interest rates assure you a higher return after the maturity period ends.

Tenure

Some banks have FD tenures within a range of 1 to 10 year years. Others might have a minimum tenure which is as low as 7 days! Furthermore, check whether premature withdrawal of the invested amount is allowed or not. In case it is allowed, does it come with a penalty fee? Opt for an FD scheme that is in accordance with your financial goals and financial requirement.

Loan against fixed deposit

Many banks provide their customers with a loan facility along with a fixed deposit. You can take this loan amount at the time of a financial emergency. Banks generally offer up to 90% of your FD amount as a loan. However, this percentage might differ from one bank to another. The maximum tenure of your loan is restricted to your maximum FD tenure. The interest rate charged by banks on loans against FDs ranges from 0.50% to 2% over the fixed deposit interest rate.

Tax benefits

Investments made in FDs are eligible for tax benefits u/s 80C of the Income Tax Act, 1961. Check whether the bank you’re planning to open as FD with has a tax-saving FD scheme or not.

Special features of FD interest rates

An FD account can be held by any Indian resident, including minors and HUFs.

Two nominees can be chosen in the application form that will be eligible to collect the FD amount after the account holder’s demise. These nominees can collect the FD amount by submitting a valid death certificate of the deceased account holder.

All banks provide a sweep-in facility on FDs. This feature allows the depositors to interlink their savings account with their FD account. This facilitates the depositors to earn FD rates on the savings account with the option of breaking the FD at any point in time and utilizing the amount.

Multiple online investment platforms are flooded with all the necessary information you need to equip yourself with before you invest in an FD scheme. Go through all this information very carefully before putting your hard-earned money in a fixed deposit.  

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