Considering Things Before Investing in Fixed Deposit for Income
Being an Indian, it will be surprisingly to know that the interest rate offered on FDs is low as 0.5%-2% in some countries. In India, FD earns interest rates ranging from 7-7.5% for tenure between 1 & 10 years. It is agreed on the fact that many still prefer FD for their investment purpose. The reason being, the secure nature of the fixed deposit and it comes with range of terms. Whilst choosing a bank for opening your FD account, make sure you select the one that offers a high rate of interest. However, FD comes with certain flaws; like- Pre-mature withdrawals are not allowed; if done, it comes with a penalty.
Still, if you prefer FD, it is advisable to take care of these 5 factors for consideration before investing in the fixed deposit. Here:
- FD Provider Credibility: It is a vital aspect whilst investing in FD to check the credibility of the Fixed Deposit provider. Even though bank FD is a secure investment option under the ‘Depositor Insurance Program’, an amount on only upto INR 1 lakh is insured under this scheme. Therefore, it’s important to check the credit rating of the bank before investing. Another option can be, you can invest a partial amount in a different bank just to avoid your dependency in the same bank.
- Interest Rate: The interest rate banks offer depends on the investment tenure you choose. Rates may vary from one bank to another. Also, it depends on the depositor’s age. For senior citizens, interest rates are quite higher.
- Loan: Loan against FD is one of the crucial factors that must be considered. During a financial emergency, the depositor can avail loan upto 90% of FD value. Check with the bank before opting for FD.
- Pre-mature Clause: You must pay penalty if withdrawn before the time-period. Usually, banks charge penalty by lowering down the interest rate by 0.5%-1%. Whilst selecting FD, it is advisable to opt for banks that impose a low penalty on pre-mature withdrawals. Just to be on a safer side, invest money in more than one fixed deposit rather than locking your money in lumpsum.
- Senior Citizen: The rate of interest for senior citizens is different for senior citizens. They are usually higher. Thus, if you are a senior citizen OR if you have someone in the family who is senior, then, you can avail the benefit of high interest under senior citizen offer. You can earn more interest in that.
Parking your money in a fixed deposit is good, but if you are looking for the long-term investment along with better returns, switch over to direct mutual funds. Else, you can get in touch with the team for any queries or advice. Till then, keep investing!
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.