A fixed deposit is considered the safest investment instrument after sovereign savings schemes like PPF and SCSS. However, in terms of popularity, fixed deposits, a.k.a. FDs, supersede all other investment types. Why? Because FDs are liquid, flexible, and an easy option for investment.
This article explores how much you can earn by investing in one or more fixed deposit accounts. Besides providing you with an idea of FD returns, this article also contains tips for finding the best fixed deposit account(s).
FD Returns – What to Expect?
Fixed deposit account returns depend on three broad factors – FD scheme type, investment tenor, and interest payment frequency. FD schemes can be cumulative or non-cumulative. People investing in cumulative schemes tie their investments with financial goals since their investment amount remains locked until maturity.
In contrast, non-cumulative fixed deposit accounts pay a fixed interest periodically. The FD returns are generated by cumulative schemes and measured by Yield To Maturity (YTM). The YTM increases as the investment tenor increases.
So, if the interest rate of a 12-month FD is 6.50%, its YTM will be 6.50%. But, if the interest rate of a 120-month FD is 7.25%, the YTM will be 10.14%. For non-cumulative fixed deposit accounts, YTM is of no use. Instead, the interest payment frequency determines the interest rate (read, FD returns).
For instance, if you invest in a 12-month FD with a monthly interest payment mode, the interest rate will be 6.31%. However, by choosing the quarterly, half-yearly, and annual modes, you can get 6.35%, 6.40%, and 6.50%.
So, the scheme type, tenor, and payment frequency determine the FD returns. Investing in a long-term (120 months) cumulative fixed deposit account is wise if you want the best FD returns.
How to Open the Best Fixed Deposit Account
You can invest in the best FD plan either online or offline. The online mode is more convenient than the offline mode of fixed deposit account opening. You can visit the financial institution’s website and click ‘Apply Now.’
To place your FD account opening request, you must enter your mobile number, email ID, location, and FD amount. After you enter your email ID and mobile number, you will receive a call from the lending institution’s office seeking an appointment.
The institution’s representative will visit you at your preferred time to verify the original documents and collect the photocopies. Although the offline mode of FD account opening is a little more time-consuming than the online mode, it is very convenient.
Firstly, you need to locate the financial institution’s branch office. Then, you can visit their office and ask for a fixed deposit account opening form. After receiving the form, fill it up correctly and hand it over to the counter clerk.
You must submit the KYC (Know Your Customer) documents irrespective of the mode you choose. The KYC documents include your identity proof (e.g., PAN, Aadhar, Passport, etc.) and address proof (Passport, Driving Licence, Aadhar, etc.).
Finding the Best FD Account – Quick Tips
The interest rate is one of the top considerations when choosing a fixed deposit account since it determines the FD returns. However, besides the interest rate, it is good to consider the following factors:
Financial Institution’s Credibility
Choosing the right financial institution is crucial for getting the best facilities. If you choose a corporate institution, check whether the company’s FDs are CARE AA or CRISIL FAA+ rated or not.
Usually, FDs with these ratings are considered very stable.
Loan Facility
All top financial institutions offer loan facilities against fixed deposit accounts. You can avail of a loan of up to 75% of your principal amount.
Also, the interest rate is only 2% more than the prevailing maximum FD interest rate.
Premature Withdrawal
The best financial institution allows premature closure of fixed deposit accounts. However, if you close an FD account before its maturity date, the FD returns might take a hit.
So, choose a financial institution that does not levy a hefty penalty on premature FD withdrawals.
The EndNote
This article explores all you need to know about the interest rates of an FD. It is very important to know the interest rate since it directly affects the FD returns. Follow the tips to choose the best financial institution and multiply your capital safely.
