Similar to any other investment option, fixed deposits also require careful consideration from the investor’s part. From the interest rates offered to minimum deposit options, there are numerous things which should be clear to an investor before he or she invests in an FD account. These crucial pointers to keep in mind and check are discussed beneath.
Rate of interest
Different financial institutions offer varying rates of interest on fixed deposits. Subsequently, it is crucial to take note of all the available offers and compare them before finalising on a financial institution. Additionally, investors must also take note of the interest pay-out frequency in case of non-cumulative fixed deposits. The pay-out can be monthly, quarterly, half-yearly or annually.
It is advisable for investors to use a fixed deposit calculator to calculate and compare the different rates of interest offered by financial institutions as well to learn about the most high-yielding investment.
Senior citizen or existing account benefits
Usually, financial institutions offer additional benefits for senior citizens investing in a fixed deposit account. High senior citizen fixed deposit interest rates are provided to offer retirees a better chance of increasing their savings since they are unlikely to have a source of stable income after retirement.
Length of tenor
There are multiple aspects to the tenor for which an individual invests in a fixed deposit account. Financial institutions offer different rates of interest on different tenors; usually, a higher rate of interest is offered to investors who are investing for longer-term. Furthermore, investing for a longer tenor essentially results in more number of interest pay-outs which leads to better overall revenue generation.
Options of premature withdrawal
There can be numerous reasons why an investor would want to prematurely close their fixed deposit account. Consequently, it is advisable to look for schemes which do not demand an exorbitant additional fee to prematurely close such an account. Additionally, investors must also understand how premature withdrawal of fixed deposits affects the interest calculation.
Only a few financial institutions offer the option to investors to avail a loan against their fixed deposit account as the security. It is advisable to look for such schemes since this allows an investor to avail financial aid during emergencies. Additionally, this option also allows an investor to avail the financial aid without having to withdraw their FD prematurely.
Security and insurance cover
Numerous government norms have been introduced, ensuring that any investment done under a fixed deposit account stays insured in case the financial institution fails. While investors do not need to additionally opt for this insurance cover, under this directive, every investor has their principal and interest amount insured up to a sum of Rs.1 lakh (only if the FD account is with a Government-backed financial institution).
Minimum deposit options
Different financial institutions allow investors start their fixed deposit account with different minimum deposit amount. Usually, reputed NBFCs offer a minimum of Rs.25,000 as an investment in fixed deposit accounts. The maximum amount of money that can be invested in these accounts can go up to Rs.5 crore.Potential investors should take into consideration all the above mentioned factors and how the interest earned on a fixed deposit is taxed before investing in such schemes from a specific financial institution. Additionally, using a fixed deposit calculator to determine the exact return on the investment should also be a crucial pointer in deciding the NBFC to invest in.