Fixed deposits (FDs) are traditional investments with zero risk. FDs produce higher interest earnings than basic savings bank accounts. Different types of FDs are available with attractive features. FD investors must acknowledge the options available before they make a final decision.
Types of FDs
Banks offer a variety of fixed deposits to attract more FD investments. In addition, the Government of India initiates and backs up the best interest-paying bank fixed deposits with deposit insurance.
The varied types of FDs are as follows:
– Regular Fixed Deposits
Any individual aged between 18-60 years can open a regular FD account. Banks offer two options – cumulative and non-cumulative – to choose from based on periodic interest payment needs. A cumulative fixed deposit credits the interest earnings in the FD account at the end of FD maturity. A non-cumulative FD credit interest earnings are credited on a periodic basis.
– Tax Saving Fixed Deposits
Tax savings FDs, as the name suggests, are deposits that allow tax savings on interest earnings. These types of FD are offered with only a tenure of 60 months. They have a mandatory lock-in period of 5 years to earn interest. No premature withdrawal is allowed for these FDs.
– Senior Citizen Fixed Deposits
FDs for senior citizens or retirees are one of the best fixed-income financial institutions that institutions offer. These FDs are specifically for senior citizens to help them earn assured interest income from their invested funds. Banks offer a higher interest rate on these FDs for senior citizens. There are several privileges for senior citizens, including an overdraft facility, charge-free premature withdrawal, an additional interest rate of 0.5%, and others.
– Flexi FDs
Flexi FDs are offered with the benefits of assured returns, like FD, and liquidity benefits, like a savings account. The FD account is linked to the investor’s Savings Account. If the linked Savings Account balance is lower than the minimum requirement, the deficit amount gets transferred automatically from the linked Flexi FD account in the savings account.
– NRE Fixed Deposits
An NRE account is a bank account maintained by a Non-Resident Indian (NRI), residing in a foreign country. They can invest in FDs after converting their foreign earnings into Indian rupees and park their fund in an NRE fixed deposit account to earn high-interest.
Steps to choose the best FD plan
– Credibility or FD Rating
The RBI is the regulatory and control body of all public, private and commercial banks in India. Hence, an insurance cover of Rs. 5 lakhs per depositor is assured by the RBI subsidiary. When choosing the institutions to open a corporate fixed deposit account, individuals must review the ratings offered by third-party rating agencies and understand the various rating levels for investing in a perfect FD.
– Rate of Interest
A slight difference in basis points of interest rates can result in high interest amounts over years. Depositors must opt for the safest and best fixed deposit offering high interest rate that helps in accumulating higher interest during the FD tenure and investors can get a significant amount on maturity.
– Penalty on Premature Withdrawals
Most banks and corporations have an initial mandatory lock-in period, say 6 months, which restricts depositors from withdrawing their FD funds. However, premature fund withdrawal is allowed with a penalty. While selecting the FD scheme, one must consider premature withdrawal penalties to avoid the loss of interest earned in the case of an immediate need for funds.
– Pay-out Structure
Banks and institutions both provide cumulative and non-cumulative FDs with minor differences in the interest rates to attract investors. Based on preference and financial requirements, depositors seeking timely payouts can opt for the best FD plans as per their requirements. Opt from monthly/quarterly/half-yearly/ annual interest payout options with non-cumulative FDs.
– Tax benefits
Bank FDs offer tax benefits on interest income. Investors looking for investments to save on taxes can consider tax-savings FDs. However, look at the investment horizon as these FDs are offered with a tenure of 5 years only.
The critical thing to remember while selecting the right FD plan is to ensure that the investment plans are aligned according to the investment goals. Individuals must patiently gather all possible information to grow their funds safely and steadily.