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Tips to Consider Before Investing in Fixed Deposit

Introduction     

The stability of the global economy was jeopardised by COVID-19. Investors soon realised how market-dependent products like mutual funds, stocks, and systematic investment plans (SIPs) are volatile during a crisis.

Conversely, a fixed deposit is one of the few investment strategies unaffected by COVID-19-related market swings.

When it comes to making investments, numerous options are available. Before making a decision, investors must assess the benefits and drawbacks of each choice.

Fixed deposits are a popular investment option for people who want to park their money and earn fixed interest over a period.

Before putting money in a fixed deposit, one must consider many factors. Here are eight tips to help you choose a fixed deposit account.

What are the considerations to make before investing in fixed deposits?

1. Credibility of the FD provider

Despite being regarded as secure investments, fixed deposits can include some risk. Depositors must be extremely cautious while placing their money in a fixed deposit and choosing an FD provider.

Furthermore, up to Rs. 5 lakh of the fixed deposit of the depositors is insured by the DICGC(Deposit Insurance and Credit Guarantee Corporation).

Therefore, it is essential to research the institutions’ credit standing before investing. The credit rating of the institution offering the FD is of utmost importance because if the institution’s credit rating drops below specific points, the risk of non-repayment increases.

For instance, you can utilise Muthoot Fixed Deposits to enhance your savings! Depending on your desire, they provide short-term and long-term deposit plans. They have flexible interest payouts with a modest minimum investment of Rs. 1000 that is conveniently withdrawable and one of the highest FD rates in India at 8.38%.

2. Amount to be invested

Before investing money in an FD, depositors must decide how much they are willing to invest in an FD based on their goals and time horizon.

They must also examine the minimum and maximum investment requirements of the financial institution they have selected.

3. Interest rate

The RBI (Reserve Bank of India) makes regulations related to the highest FD rates in India. Financial institutions can choose their interest rates as long as they stay within the set parameters.

Thus, interest rates offered by different financial institutions vary greatly. Interest rates are also different for senior citizens; they receive a slightly higher interest rate.

Depositors can compare interest rates from various institutions before choosing one to get the highest FD rates in India.

4. Tenure

Financial institutions provide FDs with terms ranging from 7 days to 10 years to meet the demands of various investors.

Furthermore, the interest rate varies according to the length of the FD. One can also look for monthly interest for a 1 lakh fixed deposit to make an informed choice.

5. Interest payout frequency

When investing in an FD, depositors want to ensure that their money is returned to them frequently enough to meet their financial needs.

A few financial institutions pay interest monthly, quarterly, semi-annually or annually, depending on the tenure chosen by the investor.

Moreover, depositors can select to receive interest cumulatively at maturity (cumulative FD) or regular intervals (non-cumulative FD). They can also check the monthly interest for a 1 lakh fixed deposit to decide whether to invest in an FD.

6. Premature withdrawal

Financial institutions allow depositors to withdraw some portion of their FD amount before maturity. However, such withdrawals come with penalties.

So, before deciding to invest in an FD, make sure to understand the penalty charges imposed by the institutions.

7. Loan against FD

Financial institutions offer borrowers the option to borrow against the FD they hold to raise money for specific purposes.

Thus, ensure whether the institution provides the facility of loan against FD and what are the interest charges.

8. Nomination facility  

Depending on the type of account one opens, their FD may come equipped with a nomination facility. A nomination facility allows them to nominate a beneficiary for their fund.

Thus, make sure the financial institution offers a nomination facility.

Conclusion

Another essential thing to remember when investing in a fixed deposit is that it is a long-term investment. It is an investment where the money is locked away for several years. A fixed deposit offers an interest rate higher than a savings account but lower than other forms of investments, like stocks.

Thus, whether one must invest in a fixed deposit depends on several factors, including financial goals, investment timeline, and risk tolerance.

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