Guide to Invest in a Fixed Deposit in 2021

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Guide to Invest in a Fixed Deposit in 2021 (Image: Pixabay)
Guide to Invest in a Fixed Deposit in 2021 (Image: Pixabay)

New Delhi : A Fixed Deposit (FD) is among the most popular and preferred deposit schemes in India. The reason that it is opted by many is the secure and safe nature of the investment. So, before you opt for an FD that suits your needs, let's look into how the FD scheme works and a few factors that you must compare before investing in one. 

What is a Fixed Deposit Scheme? 

FDs are offered by banks, post offices, and Non-Banking Financial Companies (NBFCs). The principal amount that you deposit is invested at a fixed rate of interest. Over the period, the interest accrues and grows on the deposit. For a tenure ranging from 1 to 10 years, FDs fetch interest rates between 5.50 to 6.50 percent. FDs also offer a wide range of tenure that starts from 7 days to 10 years.  

Post Office Fixed Deposit: 

The Indian Postal Services also offer investment instruments known as Post Office Fixed Deposit (POFD). They are backed by the Government of India thereby ensuring a safe investment. The Government of India quarterly decides the applicable interest rates for the POFD. You can utilize the Post Office FD calculator 2021 to know the latest applicable rate of interest. Once you enter the required details, the Post Office FD calculator 2021 lets you know tentatively how much your FD will grow over the mentioned period. 

Guide to Invest in a Fixed Deposit in 2021:  

Before investing in a Fixed Deposit in 2021, remember to take into consideration the following factors: 

Rate of Interest - Although the applicable interest rate remains fixed throughout the tenure of the FD, it depends on several factors. The rate of interest is offered by the bank depending on the tenure. It can also vary for each bank. Your age as a depositor can play a huge factor in the applicable interest. Lump Sum or bulk deposits are most likely to attract heavier interests. If you fall under the senior citizen category, 0.5% higher interest will be applicable on your FD. You can make use of the FD interest calculator before choosing an FD scheme for yourself. 

Loans - A huge benefit that comes with investing in an FD scheme is that it offers you a loan facility. In case of a financial emergency, you can avail yourself of up to 90% of your deposit. The tenure of the loan would be the same as the tenure of the FD. 

Bank's Credibility - Under the DICGC's depositor insurance program, Fixed Deposits are secured and insured for an amount of Rs. 5 Lakhs. You can compare the bank's credit rating to get a better idea. You can also invest in different FDs rather than concentrating all your investments under a single one.  

Withdrawing Prematurely - If you wish to liquidate your investment ahead of your tenure, you need to pay a penalty. You will be charged by lowering your applicable rate of interest by 0.5% to 1%. If your bank allows you to withdraw prematurely without any penalty, then there are other criteria you need to meet. Therefore, you must also look into penalty charges on premature withdrawal of your investment before opting for a bank. 

Non-Cumulative vs. Cumulative - If you opt for a Cumulative FD, you can reinvest the earned interest at regular intervals. In such a case, you'll receive the accumulated interest and compounding benefits at the end of the maturity of your scheme. In the case of a Non-Cumulative FD, the interest is credited at a regular interval (either monthly or annually). 

Final Words: 

Given its safe nature, it is natural you might want to opt for an FD scheme. However, if you do your homework properly and compare the above-mentioned factors, you'll be able to reap the best out of your investments in the most secure way possible. Remember to utilize an FD interest calculator before choosing a scheme for yourself.