Fixed deposits (FDs) are the preferred choice for first-time risk-averse investors. The returns are guaranteed, and the interest rates are decent enough to give you a financially stable future. Also, you can get loans against FDs, usually fixed at 90% of the loan amount.
But before investing in anything, it’s imperative to know the investment channel first. Here are a few factors you should consider before investing in FDs.
Minimum and maximum deposit
Government banks like State Bank of India (SBI) lets you open an FD account with a minimum amount of Rs.1,000. However, the minimum amount limit could be higher for private banks. There’s no maximum limit as such, but any deposit above Rs.1 crore is considered as bulk deposit. The interest rates are higher for bulk deposits compared to regular fixed deposits.
Benefits for senior citizens
Senior citizens can earn extra interest on their FDs. Most banks offer extra interest rate ranging from 0.25% to 0.75% of the existing rate. So, if you are more than 60 years old, you will earn more interest on the deposited amount.
Fixed deposit tenure
Compare the tenures offered by different financial institutions. Usually, FD tenures range from 7 days to 10 years. However, it’s not the same for all banks. For instance, IDBI Bank offers tenures ranging from 15 days to 20 years. Similarly, Standard Chartered Bank offers tenures ranging from 7 days to 5 years. So, always check the tenure offered by the concerned bank before opening a fixed deposit account.
Premature withdrawal penalties
Most banks impose a penalty if you resort to breaking down your FD account before the maturity date. For instance, SBI charges 0.50% as a penalty for premature withdrawal of term deposit of up to Rs.5 lakh and 1% for withdrawals above Rs.5 lakh but less than Rs.1 crore. It’s always recommended not to break your FD before maturity. It will put a halt to the interest you could have earned after the maturity period.
Loan against FD
In case you need access to funds due to an emergency situation, instead of breaking your FD you can take a loan against it. Most banks offer 90% of the principal deposit as loan. However, the only drawback is you cannot extend the loan tenure beyond the FD maturity period.
FD is a good investment vehicle to invest in. However, the returns are not that great compared to other investment channels. But it’s still a good option to consider as a part of your retirement plans.