Fixed deposits are considered a safe option to park your excess funds and earn a consistent return on the same based on the interest rate. Fixed deposit schemes are offered by both banks and non-banking financial institutions. The interest rate return offered on fixed deposit accounts is usually higher than a usual savings account.
When you park your funds in a fixed deposit scheme, you can only take it out after the completion of your agreed tenure. Withdrawing funds from your FD account before the completion of your tenure can lead to heavy charges.
In India, Fixed Deposits are one of the most well known cash saving tips. They are a protected venture, offer great returns, and are not difficult to open.
So, what precisely is a Fixed Deposit? In a Fixed Deposit, you put a singular amount in your bank for a decent residency at a concurred pace of revenue. Toward the finish of the residency, you get the sum you have contributed in addition to accumulate interest. FDs are additionally called term stores.
Important considerations for FD schemes
Any fixed deposits provide a return in the form of interest income. A higher interest rate will lead to a higher return amount. Here are some important factors to consider before putting your money into any FD scheme.
Bank’s credibility
Before you invest your hard-earned money into an FD account, you must always check for the bank’s or NBFC’s credibility. You should also check for the bank’s past performances and reputation in the industry. It is always a good idea to put your funds into multiple banks to reduce your risk exposure.
Interest rate
Fixed deposits provide a return on the principal amount in the form of an interest rate amount. The higher the interest rate, the more return you will earn on your principal amount. Always check for the best fixed deposit rates from various banks and NBFCs before putting your money.
Premature withdrawal
In the case of most fixed deposits, investors will be liable to pay a penalty when they are trying to liquidate their FD investment before the end of the tenure. This penalty amount can differ depending on your bank’s policy. Usually, the penalty charges constitute reducing the interest rate by 0.5 to 1 per cent. Some banks also offer investors to break their FD before the completion of tenure without any additional charges.
Cumulative vs. Non-Cumulative
A cumulative fixed deposit scheme allows investors to re-invest the interest income earned on the principal amount. In this case, the compounding benefits and the overall accumulated interest is obtained at maturity or the completion of tenure. Non-cumulative fixed deposit schemes differ in this regard as the interest amount earned is credited into the account at a regular interval. This could be either a monthly or a yearly occurrence. A non-cumulative deposit scheme is suitable for retired investors and pensioners who want to earn consistently using these deposits.
Loan availability
One of the most important benefits offered by an FD account scheme is that it allows investors to take a loan on their deposits. During any financial emergency, one can easily obtain a loan against their FDs and meet their financial obligations. The loan amount offered can be as high as 90% of the FD amount. The maximum loan tenure for these loans is up to the tenure of the FD scheme which is usually a long tenure. Also, banks usually charge an interest amount that is 0.5% to 2% higher than the FD interest rates.
Also Read: Things You Must Know to Avail Secured MSME Business Loan
