Fixed Deposit or FD is an investment product offered by banks and a few other financial institutions. It is one of the age-old investment options in India which has not lost its relevance even today despite booming stock markets.
This is because stock markets carry risk. While on the contrary, fixed deposits offer assured returns with zero risks. Fixed deposits are now offering returns close to what many mutual funds do, and mutual funds are significantly riskier.
In a nutshell, guaranteed returns coupled with no risk make FD a lucrative option. This article will introduce you to the best fixed deposit plans and what parameters to look for while choosing a fixed deposit. If you are wondering how to choose the best FD plan in 2024, this article is for you.
Key Highlights
- Understanding the importance of selecting the right fixed deposit plan
- Exploring the factors to consider when choosing a fixed deposit plan
- Discussing the interest rates and tenures offered by different financial institutions
- Providing tips and strategies for maximizing returns on your fixed deposit investment
Interest Rate:
The foremost parameter to look for while comparing different FD plans online is the financial institution that is giving the most competitive rate of interest for fixed deposit. Interest rate signifies the final interest amount you will get on the principal amount deposited while opening FD account.
- Why is Interest Rate Important? There is no point in taking a fixed deposit plan offering 5% interest rate in an economy where the inflation rate is 5 to 7%. This will reduce the purchasing power of the money you deposited as you failed to beat inflation.
- What Should Depositors Do? Depositors should opt for the fixed deposit plan with the most competitive returns, with the most competitive interest rate. It is advisable to steer clear of banks offering less than 7.06%*p.a. in interest rates, as this factor determines your return on investment (ROI). Seek out banks and NBFCs that offer special interest rates tailored for senior citizens or women, as these can be the ideal FD plans.
Flexible Tenure:
The next important parameter is the tenure or the lifetime of a fixed deposit plan which defines your lock-in period. The best fixed deposit plans are the ones that offer flexible tenure options.
Cumulative FD vs. Non-Cumulative FD:
These are two types of FD, differentiated by interest payout frequency. Cumulative FD pays interest once at the end of the maturity period; till then, the interest is compounded into one big amount. On the flip side, non-cumulative FD gives out interest at regular intervals i.e. monthly, quarterly, half-yearly or yearly.
- What should you choose? Depending on your need for money, you can choose any of these types. The best fixed deposit plan is the one that gives you both these options. Cumulative FD plans are ideal for depositors who do not feel the need for liquid cash for the entire tenure of their FD. It is important to note that non-cumulative FDs are more suitable for those who need regular income from their investments rather than those who are looking to grow their wealth over a longer period of time.
- What if you’re retired? As a retired individual, if you require a regular income stream at periodic intervals, then opting for non-cumulative FD plans is a better choice. In short, non-cumulative FD products are the most suitable FD plans for retired individuals seeking a reliable source of regular income.
Hassle-Free Application Process:
When choosing a financial institution for a fixed deposit, it is recommended to select an institution that offers a completely paperless application process. In addition to looking for the most competitive interest rate, the FD provider should have an online application process that allows you to open a fixed deposit from the comfort of your home. This way, you won't have to visit their branch office and manually fill in a fixed deposit form or make an offline deposit.
Even if you are a working individual, you won't have to take a day off from work to visit the bank's branch, especially in today's technology-driven era. Opting for the most competitive FD return plan with a completely online process is all you need to see your savings grow over the years.
Minimum Documentation:
In addition to the online application and monitoring process, it's crucial to ensure that the financial institution requires minimal documents from you. The best fixed tenure plans are those that ask for fewer documents from depositors, making the process easier.
Essential Documents: Customers shouldn't have to deal with extensive paperwork when opening an FD account. The minimal documentation feature should allow customers to open an account by providing basic documents such as PAN, address proof and identity proof.
Premature Withdrawal:
One of the key components of any FD is the facility of premature withdrawal, which allows a depositor to terminate his fixed deposit plan before its maturity.
Penalty Charges: Banks and financial institutions levy a penalty charge for premature withdrawal of fixed deposits. The penalty charges are usually a percentage of the interest rate and vary from one financial institution to another.
Reduced Interest Rates: In case of premature withdrawal, the financial institution may offer a reduced interest rate on the fixed deposit. The interest rate offered may be lower than the original rate of interest which was locked in during the time of booking FD.
Financial Institution’s Credibility:
While fixed deposits are generally safe, there is still a chance of the financial institution defaulting on repayments. It is important to research and choose a trustworthy FD provider.
One way is to check their credit ratings from agencies like CRISIL, ICRA, CARE, etc. Besides looking for the most competitive interest rates, ensure the institution's credibility for the security of your deposits.
Conclusion:
As a depositor, you should aim for the FD plan that offers the most competitive interest rate along with safety and credibility. Choose a lender based on their easy application and documentation process. To learn more about competitive FD returns, visit Shriram Finance website. Shriram Finance offers interest rates of up to 9.40%* p.a. on Fixed Deposit.
In conclusion, selecting the best fixed deposit plan requires careful consideration of several factors. Start by assessing your financial goals and risk tolerance. Next, compare interest rates offered by different financial institutions, taking into account the tenure and compounding frequency. Consider the reputation and credit ratings of the institutions to ensure reliability. Additionally, evaluate any special features or benefits offered, such as flexibility in premature withdrawal or loan against deposit options. Finally, always read the terms and conditions thoroughly before making a decision to maximize your returns and financial security.
