5 Factors You Must Consider Before Choosing the Right FD

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Fixed deposits (FDs) are one of the most preferred savings options due to their liquidity, fixed returns, and high safety. There are different types and categories of FDs available in the market. In order to choose the right FD that best suits your financial goals and requirements, it is important to gain knowledge about these types. Let’s dive deep into the various types of FDs and how you can go about making a wise decision for your financial future!

Types of Fixed Deposit

Here are the different types of fixed deposits you must know about to have a better understanding of the options available.

NBFCs Fixed Deposit

Fixed deposits that Non Banking Financial Companies (NBFCs) offer are known as NBFC or Corporate FDs. They offer attractive interest rates ranging from 5.50% to 9.25% for a flexible tenor between 12 and 60 months. Since these instruments are independent of market fluctuations, they provide assured returns and therefore have zero risk of losing the principal amount.

Bank FDs

In these deposits, you put aside a specific amount of your savings with a bank for a particular period of time at a predetermined fixed deposit interest rate. Banks are accredited financial institutions which are closely regulated and supervised by the Reserve Bank of India (RBI). Therefore, you can rest assured that your savings are secure. Their fixed deposit interest rates range between 2.50% and 7.50% for a period ranging from 15 days to 20 years. However, these FDs carry a risk of getting locked-in for a longer period of time at a lower return rate.

Post Office FDs

The savings option of a fixed deposit which is issued by Indian Postal Services is called Post Office FDs. It is backed by the sovereign guarantee of the government of India. There is no limitation on the maximum amount that you can put aside to deposit in a Post Office FD. You can also choose to redirect the interest earned in the Post Office FD directly to your savings account.Their FD rate of interest ranges from 5.50% to 6.70% for a period of 1, 2, 3, and 5 years. These interest rates fall somewhere between the Bank and NBFC fixed deposit interest rates. It is best suited for those who are extremely cautious about the risks and safety of their savings.

Key Factors to be Considered for Choosing the Right FD

Let us look into some of the essential factors you must take into consideration prior to choosing the FD you decide to put aside your life savings in:

  • Credibility

It is very essential to choose a financial institution that is reliable and has a good repute. A financial institution with a good reputation will help you choose the most suitable type of fixed deposit depending on your financial capacity, retirement, goals, and requirements.

Rating agencies like CRISIL, CARE, and ICRA offer reliable credibility ratings to such financial institutions. It is advisable to check these ratings before choosing the right FD option for your savings since they indicate their creditworthiness - higherthe credit rating, lower the risk. It is advisable to choose the ones with ‘AAA’ or ‘AA+’ rated fixed deposits.

  • Tenor

Fixed deposit tenors can range between 7 days and 10 years, hence making it a great option for both, long-term and short-term savings. FDs are an amazing savings option for you if you want to park your excess savings for short-term or you want to grow your life savings in a steady manner for a longer sustained period of time. Identify what kind of goals you have and choose the type of FD based on that.

  • Risk Appetite

It is very important to assess your tolerance levels towards risks before choosing an FD for your savings. Everyone’s risk appetite varies according to their financial situations, goals, and requirements. Therefore, it’s important for you to align your investment intrepidity with the type of saving instrument you choose.

  • Interest Rate Comparison

Compare, analyse, and draw contrasts between the various fixed deposit interest rates across various banks, NBFCs, and the Indian Post Office before making any major savings decision. This helps you stay well-informed about prevailing FD interest rates and widens the horizon of your knowledge, thereby, helping you make better savings decisions. In this way, you will be able to choose an FD that not only meets your capital goals but also maximises your returns.

  • Gauge Your Payout Frequency

There are two fixed deposit options available based on your financial ambitions and needs. They are cumulative and non-cumulative fixed deposits. In the cumulative fixed deposit, you receive the accrued interest amount with the capital amount at maturity. Whereas, in the non-cumulative fixed deposit, you receive monthly, quarterly, or yearly payouts of the interest you earn on your capital amount, based on the interval you opt for.

Conclusion

Fixed deposits can grow your savings in a steady manner by providing assured returns at predetermined fixed deposit interest rates. Choosing the right FD can catalyse this growth with the optimum returns. It is of vital importance to consider the factors mentioned above, understand your goals and align your personal exigences accordingly to choose the fixed deposit that best suits your needs. Your hard earned savings are only bound to multiply through this secure and reliable investment option.

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Disclaimer: This content is part of a marketing initiative. No TNIE Group journalist is involved in the creation of this content.

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