Fixed deposits are one of the most common forms of investment in India. It is hard to find an Indian who does not invest in fixed deposits. However, new investors frequently make some mistakes while choosing a fixed deposit, resulting in low returns and less than optimal satisfaction. This article informs you about the top-7 things you may consider before investing in an FD to get the maximum returns from it.
1. Security
The first thing you need to check before opening a fixed deposit account is the safety rating of the financial instrument.
While investments in banks are usually secured up to INR 5 lakh, housing finance companies’ FDs are rated by credit rating agencies like CRISIL and CARE. Any fixed deposit with CRISIL FAA+ or CARE AA rating is regarded the best.
2. The Minimum Investment Amount
There is a wide disparity between the minimum investment amount among financial institutions.
Generally, housing finance companies like PNB Housing allow fixed deposit accounts to be opened only with an INR 10,000 or more investment amount. Moreover, there is no upper limit to the investment amount.
Hence, before investing in a fixed deposit account, you must inquire about the minimum investment amount and invest accordingly.
3. Investment Term
A fixed deposit account’s maturity term ranges between one year and ten years. You must choose the term carefully, as premature withdrawal may reduce the effective FD interest rates since you need to pay some penalty while closing the account.
The best way to avoid early withdrawal is by laddering your investment across various maturity terms.
4. The Interest Rate
Indian financial institutions offer two types of fixed deposit accounts – cumulative and non-cumulative. FD interest rates depend on the account type.
Generally, the interest rate of a cumulative FD is higher than a non-cumulative FD. Housing finance companies like PNB Housing offer the best yield on 10-year fixed deposits.
5. TDS
TDS or Tax Deducted at Source is a mandatory deduction which financial institutions deduct from your net interest income. The TDS amount can range between 10% and 20%.
However, the interest you earn from a corporate fixed deposit account is TDS-free up to INR 5,000 a financial year. Hence, in addition to the best FD interest rates, a corporate FD, such as from PNB Housing, also enables you to save more on account of TDS.
6. Senior Citizens Earn More
Since senior citizens invest more in fixed deposits than young investors, financial institutions offer higher benefits for senior citizens.
For example, PNB Housing’s Senior Citizen FD interest rates are 0.25% higher than the prevailing highest interest rate. Hence, before investing in a fixed deposit account, you should check the extra rates and select the best FD.
7. Additional Benefits
Unlike conventional banks, corporate financial institutions like PNB Housing provide several value-added benefits for investors.
For example, you can get free doorstep service while opening a fixed deposit account.
Moreover, you may opt for the auto-renewal and auto-maturity facility to help your capital grow without interruption.
Conclusion
Creating a fixed deposit account may be a significant financial decision. Try to refrain from premature withdrawals since premature withdrawals reduce the effective FD interest rates.
