Fixed deposits (FD) are one of the most popular investment options in India. It is a secure and safe investment method that has been preferred by Indian investors for many years. Fixed deposits offer high returns, ensuring the safety of the primary amount invested. Many banks and non-banking financial companies (NBFCs) offer fixed deposit schemes to investors.
Fixed deposits are of two types – traditional fixed deposits and the tax-saver fixed deposits. Traditional fixed deposits are invested by the investors over a fixed period, and interest later gets credited to their accounts. Tax-saver fixed deposits are offered by banks to their customers to save their income tax. In case of Tax-saver fixed deposits, the investment made is locked in for a period of 5 years.
Fixed deposits have been a preferred option for risk-averse investors who don’t want to invest in any capital markets. Fixed deposits are simple to understand and offer a stable return on investment.
Types of Fixed Deposits:
1) Standard Fixed Deposits
This type of FD is the most traditional one, which is offered by banks. This asks for a fixed amount of money and provides an interest rate on the money invested over a fixed period, which can be anywhere from one month to ten years.
2) Senior Citizen Fixed Deposits
Senior citizen fixed deposits are a type of fixed deposit where senior citizens receive a higher interest rate compared to the standard fixed deposit. The average age to avail of this standard is above 60 or 65 years.
3) Tax Saving Fixed Deposit (FD)
As the name mentions, these fixed deposits are for those who look to invest money for a longer period and save income tax at the same time. The lock-in period for a tax-saving fixed deposit is 5 years, and the maximum amount that can be invested is INR 1.5 lakhs.
4) Recurring Deposit (RD)
Apart from traditional and tax-saving fixed deposits, many banks and NBFCs also offer recurring deposits where investors can invest a small amount monthly, i.e. INR 1000 for a given period and enjoy the same interest rate as that of fixed deposits.
How to Choose the Best Fixed Deposit?
Choosing the best fixed deposit entirely depends upon the needs and requirements of the investor. However, here are a few points that one should keep in mind while choosing the best fixed deposit:
1) Interest Rate
The interest rate provided by banks is a crucial factor while selecting a fixed deposit. It should be noted that the banks provide varying interest rates for different periods. Therefore, it is essential to compare the interest rates offered by various banks before deciding upon one. For example, SBI offers an interest rate of 5.1% for a fixed deposit with a tenure of 1-10 years.
2) FD Tenure
Different banks offer varied tenure in fixed deposit schemes, which go as low as 7 days, and as high as 10 years. It solely depends upon you how long you want to invest your money.
3) Premature Withdrawal Charges
One should note the bank’s policy on premature withdrawal charges. The bank always imposes penalty charges on premature withdrawals, which results in a lower interest rate. Therefore, it is essential to check the bank’s withdrawal policy.
4) FD Interest Calculator
One should always calculate the interest rate that they will earn in their fixed deposit by using an FD interest calculator, which is available online. This helps investors determine the exact amount they can expect at the time of maturity.
5) Ratings and History of the Bank
It is important to take note of the bank’s ratings and credibility before investing. One should look for banks that are stable and secure. Therefore, AAA rated banks are the best options for investing, as they are considered the most stable.
Conclusion
In conclusion, fixed deposits in India are a trusted and secure method of investment with a low-risk appetite. Various banks and NBFCs offer different fixed deposit schemes. One should always look for the interest rate, tenure, and premature withdrawal charges while selecting a fixed deposit scheme. Additionally, it is always advisable to evaluate all the options and weigh their pros and cons before investing.
Summary:
Fixed deposits are a secure and safe investment method that has been preferred by Indian investors for many years. There are two types of fixed deposits; traditional fixed deposits and the tax-saver fixed deposits. Traditional fixed deposits are invested by the investors over a fixed period, and interest later gets credited to their accounts. Tax-saver fixed deposits are offered by banks to their customers to save their income tax. Apart from these, there are also senior citizens and recurring deposits. One should keep in mind a few points while selecting a fixed deposit, such as interest rates, tenure, premature withdrawal charges, and the bank’s credibility. Finally, always evaluate all the options and their pros and cons before investing.
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