Fixed Deposit Investing - 10 Things to Know Before Investing in FD

Important factors to keep in mind before investing in an FD

It is essential that you know all the details about a prospective investment, irrespective of the type of investment you select. Being fully informed ensures that your capital remains protected as much as possible and that you earn the expected returns. While FDs are not as complex as other investment options, there are several factors that you should know before opening an FD. Here is a list of such essential things to know before investing in an FD:

1. FD interest rate

Fixed Deposit (FD) interest rates vary based on the investor’s age and the tenure selected. Senior citizens generally enjoy up to 0.50% higher interest rates compared to regular investors. For example, if the highest rate for general citizens is 6.60% p.a., seniors may earn up to 7.10% p.a. Longer tenures offer better returns, so it’s wise to compare rates across different durations before investing. Choosing a tenure of 2 to 5 years ensures higher returns, making it a smart move for long-term financial goals. Always check rates across banks to make an informed decision.

2. FD Tenure

When choosing the right FD tenure, you should look for tenures that offer you the balance between high returns and adequate liquidity. Since FDs lock in your funds for the duration of their tenure, it is a good move to have multiple FDs of varying tenures so that you are assured of funds when you need them. An FD calculator allows you to instantly compare maturity amounts across various tenures and investment amounts.

3. Minimum Investment Amount

You should also check the minimum amount that you need for opening an FD. Most top banks allow you to open an FD for as little as ₹ 10,000. If you are opening an FD for a minor, the minimum amount is generally ₹ 2,000.

4. Maturity Date

If you are opening an FD for a particular purpose, like giving the maturity proceeds to your child on their birthday, double check the maturity date to make sure that the FD matures at the right time. You can also find the FD maturity date on the receipt that you get after opening an FD.

5. Premature Withdrawal Penalty

Fixed Deposits come with early withdrawal facility. Using that allows you to make a partial or complete withdrawal from your FD before the maturity date. However, you are required to pay a penalty for the same. Do check this penalty before opening the FD.

6. Auto Renewal

Many banks offer FDs with auto renewal facility, i.e. your principal amount as well as the accrued interest are re-invested in a new FD with the same tenure and at the prevailing interest rate. If you have opted for this facility, the same will be mentioned on your FD receipt.

7. Interest Payout

You can select the interest payout frequency of your choice while opening an FD. Most banks offer monthly, quarterly, half-yearly, annual and full tenure interest payout options.

8. Nomination Facility

When you open an FD, you will also be required to choose a nominee. In the event of your demise during the FD tenure, your nominee will receive the FD amount. The details of the selected nominee are also mentioned on the FD receipt.

9. TDS Declaration

The bank will deduct Tax Deducted at Source (TDS) if your FD interest income is more than ₹ 10,000 in a year. However, if you fall under the no income tax bracket, you will have to submit Form 15H or 15G as a declaration of the same. Make sure that your declaration is updated in your bank’s records, so that no TDS is deducted from your FD interest.

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