Fixed Deposit: Fixed Deposit (FD) has long been considered the preferred investment option. Generally people invest in FD to fulfill their financial goals like construction of house, buying a car, marriage and higher education etc. Apart from this, investing in FD helps in planning your retirement in a better way. However, investors need to take care of some things before opening an FD account so that the return on investment can be maximized.
Check these parameters before investing in FD
- FD Tenure: The interest rate of a fixed deposit is linked to its tenure. For example, the return on a 10 year FD will always be higher than on a one year FD. You can choose FDs of short term (1-3 years), medium term (3-5 years) and long term (5-10 years) as per your financial goals.
- Rating: Credit rating agencies like CRISIL and CARE give ratings to financial institutions on several parameters. CRISIL FAA+ or CARE AA rating of a financial institution is considered the best. To minimize the risk on the investment of your capital, definitely check the credit rating of the financial institution.
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- Rate of interest: Currently, FD interest rates are around 6.7 per cent and senior citizens get 0.25 per cent more interest. There are two types of interest rates – cumulative and non-cumulative. In cumulative mode, the invested amount is locked till maturity and on maturity the principal investment amount is paid along with interest. In contrast, in the non-cumulative mode, fixed interest amount is available every month, quarter, half yearly or annually. In such a situation, while opening an FD, first choose it carefully.
- Loan Facility: People usually apply for a loan when they need money. However, if you open an FD, you automatically become eligible to get a loan against it. Under this, you can take a loan up to 75 percent of the investment capital and interest has to be paid on it at the rate of 2 percent more than the interest rate of FD. When taking a loan against FD, the tenure of the loan is equal to the tenure of the FD. In such a situation, if you have opened an FD account for 10 years and in the second year you apply for the loan, then you will have eight years to repay the loan.
- financial institution: All FDs are good but not all financial institutions. In such a situation, before opening an FD account, you must analyze the features and value-added services of the financial institution.
(Source: Tax Guru)