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How To Choose the Best FD? Research Team | Posted On Tuesday, June 11,2019, 06:21 PM

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How To Choose the Best FD?



If you are a risk-averse investor and consider FD as a good investment, then finding the best FD scheme is very important. Factors like interest rate, tenure, interest income after tax deduction and interest compounding frequency play a pivotal role in determining the amount of return you are likely to receive as an investor. Generally, banks and NBFCs provide a safe haven for investors to deposit their money and earn good returns. However, as an investor it is a must to do your research and make some comparisons before investing your hard earned money in fixed deposits. This article helps pick the best fixed deposits at banks and NBFCs.

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How To Choose The Best Fixed Deposit?

Listed below are some of the factors that must be considered for choosing the best fixed deposit:

  • FD Interest Rate: to choose the best FD, you must take a look at the interest rates offered by various banks. Go online and compare the FD rates offered by different banks and financial institutions. Some banks offer higher interest rates on short-term FDs as well.
  • Tenure: This is one of the main factors that determine the maturity proceeds of the FD. The interest is calculated based on the period of investment. Generally, banks and other financial institutions offer a higher interest rate on a longer tenure. For example, a 5 year fixed deposit offers a higher interest rate than 1-2 year fixed deposit.
  • Interest Compounding Frequency: Also consider the frequency at which the interest compounds. Some fixed deposits compound the interest on a quarterly basis, helping your deposits earn much higher returns.
  • Penalty Rates: Check if your bank or financial institution charges any penalty in case of premature withdrawal of fixed deposits. If yes, check the penalty rates before investing. Normally, the penalty charged for premature withdrawal is 1% to 2% of the interest income.
  • Interest Payout Frequency: Also check if the fixed deposit you are investing has a wide range of interest payout options. Consider the frequency of interest payments as an important factor before finalizing any bank or financial institution. In most cases fixed deposit interest payouts are made on a monthly, quarterly, half-yearly or annual basis.

See ALso: Types of Fixed Deposits

Bank Fixed Deposit:

FD is one of the most popular investments for millions of Indians. Bank fixed deposits offers capital protection, timely interest payouts, safety on investment and higher returns. People prefer to invest in bank FDs as they are directly monitored and regulated by the RBI.  You also have the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures bank deposits like savings, fixed deposits and recurring deposits. The rates of interest differ across banks. Bank fixed deposits have zero risk and the FD can be used as a collateral to avail loans at lower interest rates.

See Also: Know Fixed Deposits

How to Choose a Good Fixed Deposit?

  • You do not have to go through customer ratings and reviews to select the best bank FD. Bank FD is mainly chosen based on interest rate offered.
  • Public sector banks are the best options for individuals who seek safety of their deposits.
  • Investors must also consider other criteria for choosing a good bank FD like maturity amount, interest income after tax deduction and inflation-adjusted returns.
  • The rate of interest varies across banks. Certain private sector banks offer higher interest rates on FDs. You must compare and analyze the rates offered by various banks before investing in FDs.
  • You must also carefully go through the premature withdrawal clause, as different lenders have different terms and conditions on premature withdrawal of fixed deposits.
  • Banks offer various types of fixed deposits like cumulative and non-cumulative FDs, normal FDs, tax saver FDs and so on. Choose the type of FD that suits your financial requirements.

See Also: Fixed Deposit Interest Rate

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