A Quick guide to Choosing the Best FD Scheme (Updated 2021)

Expanding your hard-earned money might seem difficult with the availability of various investment avenues in the financial sector.

One of the simplest and most reliable ways to increase your savings over time is by investing it in a fixed deposit.

However, one must be aware of few significant factors such as interest rate, lender’s credibility, early withdrawal charges, etc., before finalizing a fixed deposit to reap maximum benefits out of it.

Read on to know more about choosing the best FD scheme

An ideal deposit scheme offered by various financial institutions that guarantees returns, fixed deposit (FD) is a secure and efficient way to grow your funds without any hassle.

The important parameters to be considered while choosing an FD scheme are as follows:

1. Rate of interest:
The most crucial aspect to be analyzed while investing money in a fixed deposit scheme is the interest rate offered by the financial institution. While different banks provide varied interest rates depending on the FD tenure, it must be noted that large sums of money generally acquire a slightly higher rate of interest.

Hence, one must do an in-depth investigation to acquire the best FD rates in India.

Another key factor is the depositor’s age, and senior citizens are eligible for a 0.5% higher interest rate than the usual.

2. Loan factor
Another vital feature associated with a fixed deposit scheme is the facility of availing a loan against the funds deposited in FD. Make sure to inquire with the bank about getting a loan during a financial emergency up to 90% of the deposited amount.

However, the tenure of the loan cannot exceed the tenure of the FD as per the guidelines. Thus, the depositor/ borrower must plan the finances and repayment of the loan accordingly to avoid any mix-up later.

Image by The Economic Times

3. The credibility of financial institution
The depositor should perform comprehensive research to confirm the lender’s trustworthiness before making the final decision.

Every fixed deposit has been awarded a unique rating based on liquidity, renewal rate, maturity profile, etc., by concerned agencies such as CRISIL or ICRA. Along with proving the FD’s reliability, it also provides information about the updated market trends.

Additionally, FDs up to Rs. 5 lakhs are pre-insured under the depositor insurance program by DICGC. Hence one could distribute the money among different types of investments for better revenues.

4. Cumulative or Non-cumulative
While opting for an FD scheme, one can choose whether to compound your interest until the maturity of the tenor or get the accumulated earnings on a monthly/ quarterly/ annual basis. In the cumulative FDs, the interest is compounded over time and disbursed along with the principal amount at the end of tenure.

Conversely, non-cumulative FDs are ideal for those who wish for the interest to be credited in their account at regular intervals.

5. Premature FD withdrawal
Many banks levy a certain interest rate if the depositor wishes to liquidate their FD investment before the fixed tenure. Hence, one should strive to invest with a bank to break the deposit prematurely without paying any penalty fee.

Hence, one should check and confirm the above-mentioned factors before investing money in a fixed deposit (FD) for a bright future ahead.


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