Fixed deposits have forever been the safest high-yield liquid financial instrument that any Indian citizen can invest in.
An FD account can provide you with high rates of interest. However, to choose the best FD, you may sometimes need to consider other factors, besides interest rates.
Here are the top-4 factors you should consider before creating an FD account.
Tenure
You can open an FD account for any duration between one year and ten years. Locking your FD for longer duration makes you immune from interest rate fluctuations. Hence, you need to evaluate your financial goals and select the right FD term.
Interest Rate
FD interest rates depend on two factors - tenure and payment frequency. If you invest in a cumulative FD account for ten years, you can earn a 9.13% yield to maturity. If, however, you select a non-cumulative FD, the interest rates will depend on the mode. Generally, monthly interest mode fetches the lowest rates.
Tax Deducted at Source
Usually, financial institutions deduct 10% to 20% TDS for interest income above INR 5,000. However, you can submit Form 15G or H at the beginning of a financial year to save a higher amount. However, you need to consider the tax implications for the same before depositing the form.
Safety
Safety is a crucial factor that can determine your satisfaction level with an FD account. Generally, bank deposits are insured up to INR 5 lakh. However, when you choose a corporate FD, the credit rating decides how safe the FD is. You can stay sure about your capital if the FD has got CRISIL AA+/Negative ratings.
Conclusion
Opening an FD account is a necessity for Indians. Perhaps no other financial instrument offers as many features as an FD. However, you can find out the best FD account and interest rates by keeping in mind the factors mentioned in this article.
