6 factors you should consider while choosing a fixed deposit

In a market characterized by volatility, ensuring the safety of your capital is of paramount importance. Fixed Deposits are a reliable way of ensuring this as it provides a steady and secure means of appreciating your investments. In these uncertain times, it is crucial to diversify your portfolio and fixed deposits can provide the stability and balance to counter otherwise high-risk investments. However, choosing the type of FD that gives you the highest fixed deposit rates is extremely significant.

With the potential for compounded returns, FDs offer numerous benefits while also prioritizing the security of your funds. When choosing the best FD, it's essential to take into account various parameters. Here are some factors to consider when choosing fixed deposits.

Interest rates:

Different institutions offer different interest rates. It is imperative that you compare the rates of interest offered by several banks before you opt to invest in the FD scheme. You must also keep in mind that banks offer different rates for different tenures. So, do look at that before taking the plunge. Also, most banks would offer a higher rate of interest for senior citizens. Here are the rates being offered by IDFC FIRST bank as of 26/11/2024

Tax-saving fixed deposit:

For risk-averse investors, tax-saving fixed deposits with a minimum lock-in period of five years, can be a good choice. With such accounts, you save tax under Section 80 C of the Income Tax Act, 1961 up to Rs 1.5 lakhs per financial year. However, it's important to note that the interest earned on tax-saving FDs is subject to taxation based on the depositor's applicable tax slab, similar to non-tax saving FDs.

Minimum deposit requirement and Tenure:

Different banks offer different minimum and maximum deposit limits. You must check with the bank before you invest in one. Also, one of the pertinent factors while choosing the fixed deposit is the tenure. Institutions offer tenure ranging from seven days to ten years. Since it varies across banks, it is a good idea to confirm this before investing. Needless to say, both the amount and the tenure will impact your returns. So it is important to consider both of them together when making an investment. You can use the FD tool to make a prudent decision.

Early withdrawal penalty fee:

There are times when you might want to withdraw before maturity. While most banks will allow for premature withdrawal, an early withdrawal penalty fee is levied in such cases which ranges from 0.5 - 1.5%. It is, therefore, prudent to check this fee with the bank about this before choosing the FD.

 Type of FD:

There are two types of fixed deposit schemes: non-cumulative and cumulative. With a non-cumulative FD, you receive the interest earned at regular intervals, with a monthly or quarterly payout option at the bank. On the other hand, with a cumulative FD, you can choose to reinvest the interest earned, allowing it to compound over time. The interest on cumulative deposits is generally compounded every quarter and reinvested with the principal amount, making them a better choice for long-term investments. Non-cumulative FDs, on the other hand, are usually suitable for retired individuals or pensioners who require regular income to meet their daily needs.

 Secured loan and card:

Fixed deposits not only provide a safe and secure investment option, but some banks also offer additional benefits on fixed deposits such as the ability to secure loans against the FD and obtain secured credit cards. With a secured loan against your fixed deposit, you can borrow funds while using your FD as collateral. Similarly, secured credit cards are available to FD holders who want to establish or improve their credit score. IDFC FIRST WOW! Credit card is a premium secured credit card which offers a credit limit 100% of your FD value.

While choosing the best fixed deposit scheme for you, it is advisable that you consider the above-mentioned factors. With IDFC FIRST Bank, you can earn a higher-than-average rate of interest on your fixed deposit, with an option of monthly or quarterly interest payout option. Senior Citizens get an additional interest of 0.5% on their fixed deposit. Start an FD with IDFC FIRST Bank today!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.