Planning to Invest in a Fixed Deposit? Use These 5 Tips to Pick the Best

by John Judge Writer

No matter if you have just started your investment journey or already have a diversified portfolio that you have created over the years, FDs are an excellent option for everyone. The guaranteed returns offered by FDs make them one of the safest investment options. However, while understanding how FDs work is considerably easier than understanding something like the stock market, selecting one can be confusing. Just like every other investment option, there are a few things that you should consider before selecting an FD. Five such important things are-

1. Rate of Interest

The biggest incentive of investing in FDs is the interest your investment earns over the selected tenure. You should look for a bank that offers highly competitive returns along with features such as multiple pay out options, reinvestment option, and online deposit booking. Some of the banks also offer higher rates as compared to others; you can prefer such banks to earn higher interest.

2. The credibility of the Bank

While the interest rate is the most important selection criteria for FDs, the credibility of the bank is crucial too. Agencies such as ICRA and CRISIL examine the FDs offered by banks and give them a safety rating. Prefer banks that have FAAA rating from CRISIL or MAAA rating from ICRA. You can visit the official website of these agencies to check the rating of the bank you are planning to select.

3. Minimum FD Amount

If you are young and just starting with investments, you might probably not have a lump sum amount to invest. As a result, you should also check the minimum FD amount of the bank before deciding. There are now banks that allow you to open FD with as little as Rs. 1,000. This highly affordable minimum investment amount ensures that most people can start an FD without putting much stress on their finances.

4. Tax-Saving FDs

There are also 5-year tax-saving FDs that are eligible for tax deductions of up to Rs. 1.5 lakhs in a financial year under Section 80C of the IT Act, 1961. However, the lock-in period for such FDs is 5 years.

If you are looking for one such FD, know that not every bank offers this facility. If tax-saving is what you are aiming for with your FD investment, check whether the bank you are interested in offers this facility.

 

5. Sweep-In Facility

Some of the banks now also offer the sweep-in facility with a fixed deposit account. With this facility, your current or savings account is linked to the FD account. In case if there is a shortage of funds in your savings account for processing a debit transaction, the required amount is withdrawn from your FD account.

This allows you to deposit a higher amount into your FD account and use the same through your savings account when required. If any such sweep-in transfers are not required, the amount deposited in the FD will continue to earn interest higher than a standard savings account.

Making the Right Decision

Rather than confusing yourself with all the different FDs offered by different banks, focus on the five factors discussed in this post. Compare FDs based on these factors, and it shouldn't be difficult for you to decide.

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Created on May 2nd 2019 02:28. Viewed 468 times.

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