Today, practically all banks offer Fixed Deposits (FDs). It is a good investment choice for investors who want to keep their money safe and secure. An FD is more popular among the investment options because of its steady earnings and low risk.
Given that numerous banks provide this choice, it’s critical to understand how to evaluate them. Therefore, there are five most crucial factors you need to think about while placing your money in a Fixed Deposit. Those factors are listed in this article.
Tenure
Consider your deposit’s tenure carefully before making a Fixed Deposit investment. The length of an FD investment ranges from seven days to ten years. However, given that early withdrawal is subject to a fee and reduces the total interest earned, you should consider the deposit’s terms carefully.
If you need money soon, choose a short-term deposit. For instance, you might need money in one year. In a situation like this, choose a one-year FD rather than a five-year one. It is a better way to avoid premature withdrawal.
Need help determining your financial needs? Then you should park money in several FDs with different terms. Suppose one FD matures roughly after a year or two and the other after a longer period, say five years.
This way, when you need money early, you can use the maturity amount and avoid paying the penalty for withdrawing money. You can also reinvest the maturity amount when there’s no need for a lump sum. Additionally, because you will have multiple FDs, you won’t need to break the ones with longer duration.
Interest
The RBI issues regulations governing the maximum interest rate banks apply on savings and Fixed Deposit accounts. The banks can choose their interest rates within the established parameters. Because of this, the interest rate on Fixed Deposits varies from bank to bank, but relatively few people know that it also fluctuates depending on the deposit’s tenure. Refer to the whole interest rate chart provided by the bank for different terms to see investing for how long will be beneficial.
The banks occasionally give a higher interest rate when you extend the loan’s term by a few days or months. However, it differs from bank to bank. Therefore, use a Fixed Deposit calculator to determine which choice is best for you.
Tax Deducted at Source (TDS)
The interest received on FDs is taxed as income. Besides, the total interest collected on the Fixed Deposit becomes taxable and is subject to a TDS deduction if it reaches Rs. 10,000 in a single financial year.
It means the bank will subtract 10% of the interest received when the interest surpasses the Rs. 10,000 limits.
You can file Form 15G/H to get exempt from taxation. This form declares that your annual income is not subject to tax. Therefore, the bank will not deduct the TDS on interest earned when it exceeds Rs. 10,000 when they receive this form. However, it is only applicable if you do not have taxable income or the sum of your interest income and other income does not reach the maximum amount.
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Interest Payout Frequency
Check the bank’s policy regarding withdrawing interest when you opt for a regular income from your Fixed Deposit. For example, some banks in the past offered quarterly and annual interest withdrawals. Now, banks also pay out monthly interest.
Therefore, you must consider the bank’s policy regarding the interest payout if you want a steady income from the interest earned on your Fixed Deposit.
Senior Citizen Offer
Senior citizens receive a different interest rate on Fixed Deposits than non-senior citizens. They typically receive higher rates. As a result, you can benefit from higher interest rates under the Senior Citizen offer if you qualify for the same. Or open an FD account for a senior citizen in your family member to earn better returns. This is how you can increase the interest you receive on your deposit.
To Conclude,
These are a few things to consider before placing your money in Fixed Deposits. It will assist you in selecting a Fixed Deposit that best suits your needs when opening one online. Nevertheless, we recommend using a Fixed Deposit calculator – an online tool to compare the best interest offers before investing.
