Factors to Consider Before Opening a Fixed Deposit Account

August 17, 2020 Guest Posts Fusion WeRIndia No comments

A fixed deposit is a useful investment tool provided by banks as well as non-banking financial companies. In this, you can deposit the money and gain interest in return. The rate of interest in this form of account is higher than the digital savings account. Once you have made the deposit, you can only withdraw post the maturity date.

If you are interested in opening a fixed deposit account, the following are the factors that you should consider –

Interest Rates

The rate of interest offered differs across banks and the tenure you have selected. And this rate of interest remains the same throughout the period of the deposit. New banks and certain small finance banks may provide a higher rate of interest as opposed to commercial banks.

There is an additional interest for senior citizens in all cases. Moreover, all the information including interest rate, investment amount, tenure, and the maturity period is mentioned in the deposit certificate known as FD Advice.

Interest Payment Frequencies

Fixed deposit accounts offer various interest payment options that include weekly, monthly, quarterly, half-yearly, and annually. Additionally, if you do need the interest payment, you can choose the reinvestment mode.

In this, the interest that you have generated gets invested again after compounding the amount quarterly. And the overall amount is paid upon the maturity of the deposit account.

Deciding the Tenure

You can open fixed deposit for a minimum of 7 days, and the maximum duration can go up to 10 years. You have to take a smarter approach to manage the risk of interest rate and gain fund liquidity.

Rather than putting all your money in the fund and locking it for years, divide the money in multiple FDS with different time durations. When the FD with the shortest duration matures, renew it for a longer duration and continue the same with different deposits. But make sure that you are able to cater to the regular income requirements. You can spread your deposits across multiple banks as well.

Safety

Fixed deposits are vulnerable to risks, so where you put your money plays an important role. Bank fixed deposits are insured under the DICGC or Deposit Insurance and Credit Guarantee Corporation.

In this, the money of each depositor is insured up to Rs. 1 lakhs that include both principal and interest amount. But mainline commercial banks reflect implicit guarantees on customers’ deposits as the government does not allow them to fail.

Taxability

Interest earned from the banks’ fixed deposit is entirely taxable. If you belong to the top-most slab, the interest of 7.25 percent return means post-tax, you will get a 5% return. Moreover, there is a 10% TDS on the annual interest of above Rs. 10,000. Therefore, consider the post-tax return prior to investing in a Fixed Deposit.

Bank fixed deposits are one of the safest schemes taken by millions of people across India. They offer a high rate of return, and the deposits are regulated by RBI. Fixed deposits offered by banks come with lower interest rates as opposed to FD offered by other financial institutions, but there is the certainty of returns.

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