If you are searching for a safer-sound investment practice with minimal risk, then Fixed Deposit (FD) is a very good option. Selecting the one that fits your financial objective can be costly for several FD schemes available in the market. This post takes you through some crucial points to be followed while choosing a Fixed Deposit plan to help you make a correct decision.
These are the types of FDs that must be considered common:
- Standard Fixed Deposits: the Regular FDs, which have a period of 7 days to 10 years.
- Tax-saving Fixed Deposits: Here, you can invest up to Rs. 1.5 lakh per annum as a deduction under Section 80C in these FDs.
- Fixed Deposit—for senior citizens: These are designed for people over 60 and offer a better interest rate than normal FDs.
- Flexi FDs: These allow you to withdraw funds prematurely without incurring penalties.
How do you choose a fixed deposit based on your financial goals?
Consider the following factors when choosing an FD:
- Investment period: When you determine how long you can comfortably lock in your funds, the tenure must coincide with your investment horizon. You should go for a short-term FD when you have a short-term goal, e.g., a holiday, car buying, or education, and Long-Term FDs are ideal for long-term goals like retirement planning or house buying.
- Interest rates: Different banks and financial institutions will have different rates on deposits. Choose a fixed deposit scheme with good returns so that your money grows at the right speed.
- Credibility of the bank or financial institution: Check the reputation and financial stability of the bank or institute offering the FD scheme. Choose a bank with a strong track record and sound financial health to ensure the safety of your investment.
- Effect on tax: Think about taxation of your FD investment. Interest from FDs is taxable as per your slab of income tax. Opt for Tax Saving Fixed Deposits to avail of deductions up to ₹1.5 lakh under Section 80C if you are out to minimise your tax liability.
- Premature withdrawal rules: Read the clauses and conditions available on Fixed Deposit withdrawal before time. Some schemes might be subjected to early withdrawal fees or have lower interest rates for early withdrawal. Choose a scheme for your liquidity requirements.
- Interest payout vs. cumulative interest: Choose between getting regular interest outputs or going for the cumulative interest if you prefer to reinvest it till maturity (compounded). Cumulative FDs are good for long-term wealth accumulation and can be treated as PPF (payback method) for regular payouts you receive from them.
Conclusion
You need to consider different elements while deciding which Fixed Deposit scheme would be ideal for your future goals. Keep these things in mind while opting for the highest interest, i.e., investment period, interest rates, where to invest (institution), taxability on interest, system of withdrawal if not needed, and returns on interest payment.
No VCCircle journalist was involved in the creation/production of this content.
