Your Money: Opening a Fixed Deposit? Check these 5 parameters first

2015年7月28日 0 Comments

Fixed deposit (FD) is the most popular investment instrument in India. People usually invest in FDs to fulfil financial goals like house construction, motor vehicle purchase, wedding, higher education, etc. A FD can also help you plan your retirement efficiently. However, before opening a FD account, investors must evaluate a few factors to maximise the returns. FD duration The duration of an FD is directly linked to its interest rate. For example, 10-year fixed deposit returns are always higher than that of a one-year FD. You can choose FDs for all types of financial goals Rating Credit rating agencies like CRISIL and CARE evaluate multiple parameters to assign ratings to financial institutions. Any financial institution with CRISIL FAA+ or CARE AA rating is treated as the best. Hence, check the financial institution Interest rate Currently, the best FD interest rates are hovering around 6.70%, and senior citizens can expect a 0.25% higher interest rate. Interest rates are of two types In the cumulative mode, the invested amount remains locked until maturity, and the accumulated interest and the principal gets credited at the term-end. But, in the non-cumulative mode, you can earn a fixed interest amount every month, quarter, half-yearly, or annually. Hence, when opening a FD, choose the right type to get the best returns. Loan facility Generally, people apply for loans when they need money urgently. But, when you open a FD, you automatically become eligible to avail a loan against it. These loans allow you to withdraw up to 75% of your invested amount at a 2% higher interest rate than the prevailing best (highest) FD interest rates. In this case, the loan term equals the FD term. Hence, if you have invested in a 10-years FD and apply for a loan in the second year, you can get eight years for loan repayment. Financial institution While all FDs are good, all financial institutions are not. Analyse the financial institution If you want to get the best returns from your investment, evaluate these parameters. In the world of investment, time is money. And, by investing in an FD instrument that delivers less than 6.7% today, you risk losing the opportunity to grow your capital wisely. Source: Tax Guru