How To Choose The Best Fixed Deposit (FD) Plan ?
Most of us consider fixed deposits to be the most reliable investment option. And rightly so! Fixed deposits offer a steady and assured growth on capital invested regardless of ups and downs of the economic conditions.
You have the option of choosing the amount to be invested along with the duration for which you want to stay invested. The fact that you can withdraw the amount in case of emergency makes fixed deposits even more lucrative.
But can one type of fixed deposit be fit for all? Not really. Your requirement may vary depending on your age, career stage, or personal commitments.
Nevertheless, you can look at your investment goals closely and choose from the many variants of fixed deposits available in the market. Here are a few pointers to help you select.
Steps To Choose The Best Fixed Deposit (FD) Plan –
- Look at the interest rate- Needless to say, the first thing to look at in fixed deposits is the interest rates. Generally, fixed deposit interest rates in India are more or less the same across all banks. Senior citizens get a slightly higher rate, half a per cent to one per cent above the standard rate.
Non-banking financial institutions may offer a higher rate of interest than banks. But higher interest rate can come with many hidden terms and conditions. Your selection should be from the topmost bracket of interest rate offered, but in consideration with some more factors.
- Duration of your investment and premature withdrawal penalty- Duration of fixed deposits can be anywhere between 7 days to 10 years and interest on fixed deposits varies as per the duration of the plan.
Think carefully before selecting the term because some banks may levy a certain penalty if you break the FD pre-maturely.
- The penalty is usually between 0.5% to 1% but it can go higher also. To avoid pre-mature penalty, you can select a shorter term and opt for auto-renewal. However, the renewal will happen at the prevailing rates at that time in the future.
- The credibility of the financial institution- You do not want to place your hard-earned money with an institution that is any less than the best.
The best way to gauge credibility is to look for credit ratings of the institution by agencies like CRISIL or ICRA.
Agencies rated FAA are good bets. To further dilute the risk, you can choose to place your FDs with different institutions rated FAA and above.
- Ease of operating- Banking paperwork and transactions can be daunting for many of us. Banks and financial institutions are becoming more and more technology-oriented. Look for platforms and apps that are user-friendly and do not create excessive hassles while booking and withdrawal of FD.
You can also count on banks and financial institutions to provide door-step facilities for a more convenient process.
- Network of financial institutions- You may need to withdraw funds from a fixed deposit in case of emergency and sometimes from a place different from where you booked the FD.
A bank or an institution with a wide network of branches across the country can be very helpful in such instances. This also comes in handy if you decide to change your base location and move to a new place.
- Tax saving FD- Other than helping you grow your savings, fixed deposits can also help you save tax. You can get a tax deduction under section 80C for up to Rs 1.5 lakhs using the 5-year tax saver FDs.
But these FDs have a lock-in period of 5 years and cannot be redeemed before maturity.
- Loan or overdraft on FD- An overdraft or loan facility using the FD as collateral takes care of the need for funds in an emergency without breaking the FD.
- The rate of overdraft is slightly higher than the interest rate of the FD but the interest is charged only on the amount utilized.
Now that you have enough information to make a decision, go ahead and see how FDs can help in your financial goals. Whether for the higher education of kids or for putting away funds for a Europe trip, fixed deposits can be your answer.
You can find the best FD plan for a small-term requirement or a long-term plan such as your retirement.
All you need to do is prioritize your goals and select from the many variants available out there. Speak to your banker if you need help deciding.
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