Fixed Deposit accounts are essential to anyone who wishes to make a steady income from their investments. This has long been known as one of the most sure-fire and secure ways of both storing your money and making it earn for you.
Invest your money in Fixed deposit schemes is the good option for inverting saving. There are a few things you need to keep in mind before you open a FD, since external factors can have a huge impact on your returns. Further, they aren’t completely risk free and independent, and without proper precautions in place, a Fixed Deposit account might cost you more than it can get you. But by far, Fixed Deposit rates in India have remained fairly stable. Just to be safe, here are a few pointers to keep in mind when opening a Fixed Deposit account.
What is a FD and why do You Need One?
A Fixed Deposit is an investment option that enables you to invest a sum of money for a fixed amount of time at a fixed rate of interest. You can calculate the interest using a Fixed Deposit interest calculator and see what tenure and interest ratio works best for you. The interest rate is usually fixed and, regardless of the prevailing interest rates in the market, you will be entitled to decent returns.
FD’s give you a higher rate of interest than any other traditional saving account. Sometimes at even twice the rate that your savings account would get you. You can decide when you want the interest; yearly, quarterly, or half-yearly. You also get added benefits if you are a senior citizen, such as a higher rate of interest.
Know your Options
A Fixed Deposit account can be of multiple types. Two very broad categories are your banks or NBFCs and Corporates. Each one comes with its own benefits and setbacks, so pick the one that suits your financial aims, risk tolerance, and management best.
Corporate FD’s offer a much higher rate of interest owning to the higher risk that you bear. These are usually offered by companies that are interested in gaining profit or raining money from the open investment market.
Banks and NBFCs on the other hand might offer you lower rates of interest, because there’s significantly less risk there. All institutions offering an FD are regulated by the Reserve Bank of India (RBI), so you also have security and the support of law on your deposit. Know why you should invest in Fixed deposit and how its better option for you
Mandatory Tax
Knowing your options is only one step of the way. Taxation and how it applies to your Fixed Deposit account is equally valuable information to keep at hand. The interest you earn on an FD is taxable just like the rest of your income. The interest you earn is grouped with your monthly income and taxed normally.
But there are ways to work past that as well. If you invest in a five-year tenure for your FD, you can get tax deductions of up to Rs.1 lakh, so always know what works best for you.
Setbacks
Your FD isn’t only giving you certain benefits and a good profit over time. It can cost you a lot if you aren’t careful with it. Read up on penalties clauses for early or premature withdrawals, and consider splitting up your lump sum into separate FD’s with different maturity dates. This way, if you ever need the deposit, in case of an emergency, you will not have to pay the penalty.
Reinvestment of Interest
As the name suggests, you can consult your bank or NBFC to see whether they have the facility of reinvesting the interest you earn upon maturity of your deposit. If they do, then your bank or NBFC will simply reinvest your interest in the form of an FD at the prevailing rate of interest. This is especially good if you can’t be bothered to renew your FD every time it matures, or if you are just looking to earn the most out of the long-term investment.
Flexible Time Period
Another easy of making the interest rate work for you is through a flexible time period. If your bank or NBFC allows you to extend the tenure of an existing FD without having to reinvest it, then you can do the same if you feel that the deposit might not be necessary for a longer duration. This way, the interest rate will remain the same but you can simply increase or decrease your tenure, according to what you need.
Other Ways
Always remember that in the world of investment you’ll never run out of options. There’s always going to be debt funds and Mutual Funds and even the stock market that you can turn to if the profit and risk ratio work out, keeping in mind your financial goals.
