Fixed Deposits or FD are a popular investment because it promises safe and secure returns. In the last few years, there has been an attractive increase in the interest rates of FDs which have added on to their popularity. Almost all banks offer FDs and some even offer online FDs but before moving with your decision, it is very important that you know few important things.
In this post, we have put together 6 very important things to consider before investing in a Fixed Deposit to ensure healthy returns and lowest risks.
Decide on the Tenure
Tenure is one of the most important factors to consider. You have the liberty of making a fixed deposit for any tenure you wish to ranging from a year or two to eight to ten years. Calculate the time when you might be needing the money and accordingly decide on what tenure you wish to go for because if you withdraw the money before your FD matures, you will not get the same rate of interest. Depending upon the requirement of money in future, you can always plan your FDs. Also go for LIC FD calculators, FD calculators etc. to help you decide better.
Study and Compare Different Banks
Different banks offer different rates of interests on FDs. Therefore, it is very important for you to study different FD interest rates 2018 offered by different banks for a particular tenure for which you want to invest your surplus funds. This is important so that you know which bank is offering the best deal which can get you maximum returns. You can use the FD calculator to reach on to a conclusion.
The More the Better
Do not invest all your money in one fixed deposit. Rather invest it in different banks by splitting the amount into different parts. This would save you from breaking the one big FD at time of need or emergency as you can break one of the FDs by paying the premature penalty on a smaller amount. Therefore, all your other FDs will stay secure and will get you best benefits at the time of maturity.
Tax Saving Fixed Deposit
If you don’t wish to pay any tax on your earnings from FD then you can opt for tax saving FD. This kind of FD comes with a lock in period of 5 years. Therefore, for 5 years you cannot break your FD. And in case, you happen to break your tax saving FD before maturity then you will not be able to enjoy the benefits of tax deduction on your investment. Investing in this type of FD is safe only when you are very sure that you will not need to break your FD before maturity. You can use tax saver FD calculator to calculate your earnings.
You may be interested to read: Important Points for Investing in Fixed Deposits
Premature Withdrawals Attract Penalty
If there is a financial emergency and you break your fixed deposit before maturity then you are subject to pay some penalty for premature withdrawals. Therefore, always be very sure while you withdraw money before maturity because not only you will have to pay the penalty but the interest rates might also vary on your FD.
Tax on FDs
Another important thing that you must know is that whatever interest you will earn on your fixed deposit, it will be liable for tax payment. But this will again depend upon the tax bracket you will fall into.