7 months ago
3
Fixed deposits (FDs) stay 1 of the astir preferred concern options for earning dependable returns portion ensuring the information of principal. However, the grade of superior extortion tin alteration depending connected the benignant of bank/financial institution, portion the complaint of returns would additionally beryllium connected the FD tenure, payout enactment and renewal mode chosen by the depositor.
Here are immoderate of the important factors that depositors should cognize for optimum FD concern decisions.
Safety of Capital
The existent grade of superior information connected opening FDs with banks depends connected whether the slope is covered nether the deposit security programme of DICGC, a wholly owned subsidiary of the Reserve Bank of India (RBI). The programme covers cumulative deposits (including savings, fixed, recurring and existent deposits) of up to ₹5 lakh maintained by each depositor of each covered bank, successful the aforesaid close and aforesaid capacity, successful lawsuit of a slope failure. At present, each commercialized slope successful India and cooperative banks, but for superior cooperative societies, are covered nether this security program.
Note that FDs opened with NBFCs are not covered nether this deposit security scheme.
Interest Rates
Interest rates of FDs disagree wide depending connected the issuing bank/NBFCs and their FD tenures. Currently, the highest FD slab rates offered by tiny concern banks are astir 100-150 ground points higher than those offered by nationalist assemblage banks and ample backstage assemblage banks.
As deposits opened with tiny concern banks are covered nether the DICGC security scheme, investors aiming for higher returns portion seeking maximum superior information tin administer their high-yield FDs crossed aggregate banks successful specified a mode that the full deposits held with each bank, nether the aforesaid close and capacity, bash not transcend ₹5 lakh.
Optimum Tenure
When selecting their FD tenures, depositors should origin successful their liquidity requirements and the clip skyline of their fiscal goals. Ignoring these factors tin pb depositors to marque premature FD withdrawals to woody with fiscal emergencies oregon to conscionable their overlooked fiscal goals. Premature closure of FDs tin incur a punishment of up to 1% connected the effectual involvement rate, which is usually the little of the primitively contracted complaint oregon the complaint applicable for the play for which the FD remained with the bank, astatine the clip of booking the FD.
Depositors should besides origin successful the FD slab rates and the involvement complaint trend, if possible, portion selecting their FD tenures.
Interest Payment Options
Depositors tin take betwixt 2 main types of fixed deposits — cumulative and non-cumulative — based connected however they privation to person the recognition of their involvement income.
In lawsuit of non-cumulative FDs, involvement is paid retired astatine predetermined intervals, usually astatine monthly and quarterly payout intervals. However, immoderate banks/NBFCs besides connection half-yearly oregon yearly involvement payout options. In the lawsuit of cumulative FDs, the accrued involvement income is reinvested, allowing them to gain involvement connected their own.
Renewal Option
Most banks supply an auto-renewal enactment portion opening fixed deposits, wherein the main and involvement constituent (in lawsuit of cumulative FDs) are automatically reinvested into a caller FD connected the maturity day for the aforesaid tenure but astatine the prevailing involvement complaint for that tenure. Depositors who bash not opt for the auto-renewal enactment person their FD maturity proceeds straight credited to their linked savings/current account.
(The writer is CEO of Paisabazaar)
