How to Pick the Best Fixed Deposit Scheme?

Fixed deposit (FD) schemes are one of the most popular investments in India because they offer decent returns and have no risks. However, the huge variety of these in the market can make it difficult for an investor to the pick the best one.

How to Pick the Best FD Scheme?

The following are some of the main factors to consider before investing in an FD account:

1. Rate of Interest

   The rate of interest determines the amount of return you get on your investment which is why this is the most important factor to consider. Usually, it varies from 8% to 12%.

2. Tenure

   In most cases, the length of the FD term determines the rate of interest. So, an FD investment of 5 years will fetch higher interest compared to a term of 1-2 years. That said, opting for a longer term can be risky. This is because if down the road you need a huge amount of cash, then dissolving the FD investment can attract a fine. On the other hand, choosing a shorter term will fetch a smaller return.

3. Penalty Rate

   In the majority of FD accounts, you have to pay a certain fine when you liquify your investment prematurely. It’s usually a small percentage of your investment (0.01%, for instance). So, if you think there is a possibility that you may need to withdraw the funds before the maturity date, then the penalty rate is something you should really look into.

4. Tax Saving FDs

   As per the Section 80C of the Income Tax Act, you can enjoy tax benefits on investments up to Rs. 1.5 lakhs in tax-saving FD investments. However, there are certain conditions you must fulfill. These are:

   • The investment must be of or exceed the minimum amount which varies from one bank to another
   • The investment must have a tenure of 5 years
   • You can’t withdraw the investment prematurely

   Fixed deposits are a great investment product. However, it pays to do some research before you finally you put your money into one.

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