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Top 10 Factors to Consider When Investing in a Fixed Deposit

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The purpose of saving money is essentially two-fold. One is to build wealth, and the other is to enjoy a good quality of life in the future. This is precisely why you need to choose your investments wisely, keeping your future goals in mind.

Although there is a wide range of financial instruments available for making profitable investments, one of the deciding factors is the risk appetite of the investor. Investing in low-risk financial instruments like fixed deposit (FD) investments is always recommended.

The primary benefit of fixed deposits is that they give a fixed return based on the pre-determined fixed deposit interest.

FDs in India are considered to be the most reliable form of investment offered by banks. By knowing the rate of interest beforehand, you can plan your returns with accuracy.

What is a Fixed Deposit?

A Fixed Deposit investment is wherein a lump sum amount from your account is set aside or invested for a particular period of time at a fixed rate of interest. Fixed deposits are also known as term deposits or time deposits. They are offered by banks and NBFCs (Non-Banking Financial Companies). Investments in FDs in India can be made through offline as well as online modes.

When you open a fixed deposit account, a certificate is given to you, which has all the details related to the fixed deposit. These include your personal details, the amount invested, maturity, tenure, type of FD investment, nominee, etc. You can also open a fixed deposit in a minor’s name as their parent and legal guardian with their KYC details like Aadhar Card. When the child turns 18, the maturity amount will be transferred to their account directly

Benefits of Fixed Deposits

The risk and expected returns of your investment play a vital role in effective financial planning. We recommend FD investments for those with a low-risk appetite because of the numerous benefits it offers

  • FD investments give guaranteed returns.
  • Fixed deposit interest remains constant till maturity
  • Fixed Deposits offer tax-saving benefits.
  • Tenure can be chosen by you.
  • You can get a loan against your FD investment.
  • FD investments can be converted to cash easily.
  • Some FD investments offer the option to opt for insurance coverage.

We have curated a list of 10 things you should know if you have made a fixed deposit investment in India so that you can make well-informed investing decisions.

10 things to know about FD investments

1. Interest Rates on FDs are Fixed And Higher For Senior Citizens.

A fixed rate of interest offered is different depending upon the tenure of investment. Higher interest is offered for a longer tenure. Many banks and financial institutions offer their own rate of interest on fixed deposit investments. Before opening a fixed deposit account, it is important to compare these interest rates.

Are interest rates on FD fixed once deposited?

This is a common question asked by customers who are interested in making FD investments. If a bank or financial institution offers you a fixed deposit with 7% interest today for a tenure of 5 years, they may offer the same 5-year fixed deposit for 5% in the next year, but it will not impact your fixed deposit interest rate, and it will remain 7%.

Almost all banks offer additional interest for FD investments made by senior citizens. Typically, the interest rate offered to senior citizens is an additional 0.50% on any tenure of investment. Shriram FD interest rates are as high as up to 9.20%* p.a. inclusive of an additional 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors.

2. You Can Decide When You Want to Withdraw The Interest On Your FD Investments.

You can choose the frequency of the interest payout to suit your investment needs. You can choose cumulative or non-cumulative fixed deposit investments. If you do not want to withdraw the interest earned on the FD, you can opt for cumulative investment. Here the interest is compounded and gets accumulated along with the invested amount. You will receive the entire amount upon maturity.

If you are looking at regular income, then you check with your respective bank / NBFC for a withdrawal of interest. Earlier banks and financial institutions would offer only quarterly or annual withdrawals. Nowadays, banks and financial institutions have started offering monthly interest payouts as well. This scheme is beneficial for retired individuals who are looking for regular monthly income.

3. The Tenure of Fixed Deposits Ranges Widely.

This tenure states the amount of time needed for the fixed deposit to mature. FDs in India can be as short as 7 days and as long as 10 years. You can choose your tenure depending on your financial goals. The most common period for fixed deposit investments are 1 year, 2 years, 5 years, or 10 years. Some banks have a special tenure of 444 days and 650 days as well. With Shriram Finance, you can invest in an FD for a tenure of 12 months to 60 months with attractive interest rates.

4. FD Investments Offer Tax-Saving Benefits.

Interest earned from a fixed deposit is subject to tax as per the income tax slab rate of the investor. If the interest earned from FD exceeds ₹40,000 in a financial year, then TDS. (Tax Deducted at Source) of 10% will be deducted. In the case of senior citizens, the exceeding limit is ₹50,000. This deduction happens directly from the bank or financial institution to ensure that you have factored in this while planning your returns.

If your total income is not subject to tax, you should submit Form 15H or Form 15G as a declaration. You can submit this declaration form to the bank so your TDS is not deducted. You can also get a deduction in income tax under section 80C of the Income Tax of 1961 if the interest income is up to ₹1.5 lakhs per annum. To get this deduction, you have to invest in a tax-saving FD that has a lock-in period of 5 years.

5. You Should Nominate Your Loved Ones When You Open Fixed Deposits.

You should choose a nominee when you open a fixed deposit account. In case of unforeseen circumstances, your nominee will receive the entire amount in your absence. By choosing a nominee, you will be ensuring that your invested amount is given to your loved one without any complications.

The details of the nominee, like their name and their relation to you, should be mentioned on the account opening receipt. In case you fail to fill in the nominee details, your loved ones might find it hard to claim the returns from your FD investment.

6. You Can Choose to Opt For An Auto-Renewal Of Your FD.

Auto renewal facility is provided to all fixed deposit account holders. When you invest in a fixed deposit, you need to instruct the bank to auto-renew if you have plans to reinvest in it further. This way, upon maturity, the principal amount, along with the accrued interest, is automatically reinvested for a further tenure as chosen by you. The auto-renewal will be mentioned in your account opening receipt. This makes it a hassle-free investment option.

7. You Can Choose to Receive Your Funds In Your Bank Account Upon Maturity.

Auto credit facility instructs the banks to deposit the entire amount of the FD in your account at the time of maturity. This saves you the time and effort to close your fixed deposit investment. Communicate whatever you choose to the bank or financial institutions for a smooth investing experience.

8. You Can Withdraw Your FD Investment Prematurely, But It Comes at A Cost.

All standard FDs in India come with a premature withdrawal facility. In case of any financial emergency, you can withdraw full or partial amounts that are invested in FD. However, you will have to pay a penalty.

It is important to note that premature withdrawal is not available if you have invested in a tax-saver FD during its lock-in period.

9. A Better Alternative to Premature Withdrawal Could Be Taking A Loan Against Your FD.

In case of an emergency, if you need funds but do not wish to avail the premature withdrawal facility, then you can opt for a loan against your fixed deposit. Around 90% of the fixed deposit amount can be availed for a loan at a low-interest rate. This is usually 2% more than the FD interest rate.

Availing a loan against your FD works better than premature withdrawal as it secures your capital and allows you to repay the loan in small instalments.

10. You Can Opt for A Sweep-In Facility Offered By Banks For Investing Flexibility.

Many banks offer a sweep-in fixed deposit facility. A threshold limit can be set on your savings account, and anything above that would get converted into an FD. The sweep-in facility will give better returns than the funds parked in a savings account. It will also allow you to instantly withdraw funds from your fixed deposit without any penalty charges or fees.

Also read: Quickest way to get rich with FD investment

Parting Thoughts

Now that you know these details about fixed deposits, you can plan your fixed deposits wisely to meet your financial objectives. Choose the features of your fixed deposits to suit your goals and enjoy a hassle-free investing experience.

Shriram FD interest rates are skyrocketing after the recent changes in repo rates. Invest as low as ₹5,000 and enjoy the benefits of low-risk high return fixed deposit investments with Shriram Finance. Calculate your returns before you make an investment with our hassle-free FD interest calculator.Invest Now!

Key Highlights

  • Investing in a fixed deposit is a zero-risk investment with better returns.
  • Fixed deposits provide fund liquidity with an option for premature withdrawal with nominal penalty.
  • Senior citizens can avail an additional 0.50%* p.a. with Shriram Fixed Deposit and earn interest as high as up to 9.20%* p.a.
  • Investing in a fixed deposit provides depositors with an option to avail a loan against their FD.

FAQs

1. Which FD has the highest rate of return?

Shriram Fixed Deposit offers the highest rate of return running up to 9.20%* p.a. inclusive of 0.50%* p.a. for senior citizens and 0.10%* special interest benefit for women depositors.

2. Can you double your money using FD?

Investors can double their money by investing in fixed deposits for a longer duration and using an investment strategy, as the investment doubles over the set term.

3. Is it possible to withdraw money from a fixed deposit before it matures?

Yes. However, you would be charged a nominal penalty for premature withdrawals

4. What happens if we do not withdraw our FD when it matures?

However, if a fixed deposit matures without being claimed, the money is transferred to the bank account that the investor specified on the initial investment form.

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