Fixed deposits (FDs) are a risk-free and convenient way to invest your money. FDs are the first choice whenever one is looking for a hassle-free and safe way to park your funds.
Almost all banks and Non-banking finance companies (NBFCs) offer FDs to their customers. You can choose the best-fixed deposit type and term as per your requirements, ranging from a few days to years.
Even though fixed deposits are convenient to start and operate, you need to keep a few things in mind before you open one.
What To Know Before You Open A Fixed Deposit?
Below are a few things you should keep in mind before you open an FD:
Have A Laddered Approach
In a laddered investment strategy, you allocate parts of your investment into different accounts that mature at separate dates. This staggering of maturity dates allows you to earn higher returns by choosing varied terms keeping in mind the best-fixed deposit interest rates offered by banks.
As the FDs mature at regular intervals, you have better liquidity too. Each maturity date corroborates with a rung of the investment ladder. The more rungs you have, the lesser your exposure to FD rate fluctuations.
Keep In Mind Effective Returns
When you invest in a fixed deposit, the interest your earn on it is subject to taxation; the tax rate depends on your tax slab. Post-tax returns for those in the higher slab are lower for those who fall in lower tax slabs.
So when you plan your investment keep in mind this aspect and then calculate the effective returns.
Check the Special Deposit Rates
Some NBFCs and banks offer special deposit rates for FDs of a specific term. These FD rates are generally higher than rates offered for other FD tenures.
If you are looking for best-fixed deposit interest rates, keeping your deposit for a few days extra can earn your higher rates. If you need money for a specific reason at a specified time, keep in mind your requirements before committing to a tenure.
Explore The Option Of Sweep-in Fixed Deposits
Sweep-in FDs combine the convenience of a savings account with the higher returns of a deposit account. You can withdraw the cash whenever you want, like from a savings account; you get a higher rate on your money for the duration you keep the funds.
If you are not sure when you will need the money but do not want to lose out on the possibility of earning higher interest, then sweep-in FDs are a good option.
Online Fixed Deposits Are Just A Click Away
Most banks offer the option to open a fixed deposit online. You do not have to wait to go to the bank to open a deposit. You can open a deposit account from the comfort of your home, and your money can start earning interest from the next day onward.
Each bank may have a slightly different process; you can check the bank website to find out more and open your deposit.
Loan against Fixed Deposit
FDs, not only help you save money and help interest, but they can also help you when you need funds. If required, you can take a loan against a deposit from your bank. The interest rate for these loans is two per cent higher than what the banks pay you on the FD.
The interest on loans against FD is lower than personal loans, and they are a hassle-free and quick way to access funds when required.
Fixed deposits are an effective tool for financial planning. Keep the above aspects in mind and choose the best-fixed deposit based on your requirements. Always research well and understand the product before you invest.