In India, opening a Fixed Deposit Account is one of the most popular ways to save money. It enables you to protect your principal amount while letting you generate returns at competitive interest rates. If you opt for Tax-Saving FDs, you could also enjoy tax exemptions of a maximum of Rs.1.5 lakh u/s 80C of the Income Tax Act. Besides, an FD is typically considered a safe investment scheme to deposit your money.
Today, you can easily open an FD online, even on the go, using the Internet Banking facility or Banking app and enjoy its various benefits. However, before you invest in this deposit, it is essential to consider certain crucial factors. These include the following:
Minimum deposit amount
When considering this Term Deposit, check the minimum amount required to open it. This typically varies across banks. For example, some banks may let you open an FD with just Rs.5000. You can also determine the maximum deposit limit for an FD set by your bank.
When you opt for an FD, you earn interest on the amount you deposit over a period of time. This interest is paid at a fixed rate decided by your bank. Hence, the interest rates vary across banks. The rates also depend on the tenure of your FD.
Apart from this, your bank may offer a slightly higher interest rate on FD if you are a senior citizen. Therefore, it is crucial to ascertain the interest rates before investing.
Penalty on premature withdrawals
Usually, banks allow you to withdraw your FD before the maturity date. Consequently, you can access your funds in the case of a financial emergency. However, you may need to pay a penalty. This amount usually differs across banks.
Banks typically enable you to opt for FDs with tenures ranging from seven days to five years and more. Just like the Fixed Deposit rates vary across banks, the maximum and minimum tenure of FDs may also differ. So, take care to match the deposit tenure to your financial goals.
Adding a nominee to your FD is generally a good idea, especially when you are a sole depositor. Moreover, using the Mobile or Internet Banking facilities of your bank, you can easily change or add a nominee anytime and from anywhere.
Interest payout frequency
When opening an FD, apart from looking for the highest interest rate on a Fixed Deposit, you can also choose between a Cumulative and Non-Cumulative FD. For Non-Cumulative FDs, the interest will be deposited into your account on an annual, half-yearly, monthly, or quarterlybasis, depending on your choice. For Cumulative FDs, the total interest amount is paid at maturity.
Now that you know the different factors to consider, ensure you refer to them when opening an FD.