Fixed Deposits are usually considered a safe investment option for individuals who want to earn predictable and stable returns. These returns are generally guaranteed, and there is no real risk of capital loss. FDs may also provide a better interest rate than a regular Savings Account. While this investment option is popular, not all FD schemes are equal.

Hence, consider various aspects before you choose. Let us explore the different factors you need to consider when choosing an FD.

About FDs

When you open a Fixed Deposit, you must deposit a particular sum with a bank for a specific period. The amount you invest earns interest at a pre-determined rate. This interest rate is set at the time you open your FD Account. You can get the interest on an annual, monthly, half-yearly, or quarterly basis, depending on your preference. Alternatively, you can receive the invested amount and the compound interest when the FD tenure ends.

Aspects to check when selecting an FD

The various factors that you should be mindful of when choosing an FD include:

• Tenure options

FDs usually come with multiple tenure options. For example, your chosen bank may offer tenures ranging from seven days to 10 years. Typically, long-term FDs offer higher interest rates. On the other hand, short-term FDs might provide more flexibility and let you access your money soon. Select a term that matches your liquidity requirements and financial goals.

• Interest payment frequency

FDs come with multiple options for interest payouts, such as yearly, quarterly, monthly, half-yearly, or at maturity. The frequency of interest payouts you select can impact your cash flow. Hence, choosing an interest payment frequency based on your cash flow requirements and financial needs may be a good idea.

• Interest rates

When selecting an FD, the interest rate is typically a crucial aspect to check. This rate is the principal factor influencing the returns of your FD. You can usually find the current Fixed Deposit rates for senior citizens and general investors on your chosen bank’s official website. Interest rates vary across banks. Therefore, shop around to find the best rate.

• Bank reputation and credibility

Determine the reputation and credibility of the bank offering the FD when investing. Choose a well-established bank with a track record of reliability and financial stability. When you select a trusted bank, it decreases the risk of default. It also ensures the security of your money.

• Terms related to premature withdrawal

There may be times when you must withdraw your FD prematurely. Hence, before you finalise an FD, review the terms and conditions of premature withdrawal. Select an FD that has reasonable terms.

Conclusion

FDs are a reliable investment option. However, you need to consider various aspects like interest rates, tenure options, terms related to premature withdrawal, etc., when selecting a suitable FD.