If you have long-term investment plans for your money but find it hard to maintain a consistent savings plan, then a Fixed Deposit could be the ultimate solution. It’s quick, with impressive interest rates, and helps you manage your finances well. Your money remains secure with the bank or NBFC and generates high returns, and you get your money back once the fixed term is over.
However, before you go for a Fixed Deposit, here are 7 things that will help you make an informed decision about this kind of investment.
1. Understand what is a Fixed Deposit
An FD or term deposit, is a long-term investment plan wherein you can deposit money with a bank or an NBFC for a predetermined time period and a fixed interest rate on Fixed Deposit. This time period can be determined between you and the financial institution, and can last from a minimum of 7 years to a maximum of 10 to 20 years.
2. Nominal Penalty for Premature Withdrawals
Banks and NBFCs levy a small penalty if you withdraw money from your Fixed Deposit before maturity, to ensure that your money remains safe and accrues interest. The penalty rate is based as per the discretion of the lender and could range from 0.5% to 1% of the Fixed Deposit. However, this doesn’t mean that you cannot withdraw the money.
3. Uniform Interest Rates
The Reserve Bank of India releases guidelines for setting the rate of interest for FDs below Rs.15 lakh. For any amount above Rs.15 lakh, the lender can determine the rates of interest, which can vary from one financial institution to another.
4. Choosing Appropriate Tenure for Lock-in
Before deciding to lock-in your amount with the bank, ensure an appropriate time period for the lock in, so that there is a minimum limit before which you can withdraw the amount. However, remember you can always withdraw money during the lock-in time by paying a small fee or penalty to the bank or NBFC.
5. Reinvestment of the Fixed Deposit upon Maturity
Some banks and NBFCs allow you to redeposit the Fixed Deposit amount upon maturity. This matured sum can ensure higher returns and you can, therefore, increase your chances of better returns and savings.
6. Split the Amount you Want to Deposit
If you have a large amount to be deposited, choose various time periods and split the amount for different Fixed Deposit accounts. For example, if you have to deposit Rs.5 lakh, split the money and deposit Rs.2 lakh for 1 year, Rs.2 lakh for 2 years, and Rs. 1 lakh for 6 months. This would ensure that the income you earn from your FDs remain steady and you have the flexibility to withdraw anytime the need arises. You can also redeposit these matured amounts and reap benefits of revised interest rates!
7. Returns are Guaranteed
Fixed Deposits are one of the most safest and traditional schemes of investment that carry guaranteed returns upon maturity. If you have been worrying about spending your money in a proper investment, availing Fixed Deposit facility can be a great idea!
Keep these seven basic points in mind before opting for a Fixed Deposit and you will be able to earn high returns in the long run.