Fixed Deposit is a financial instrument providing investment plan wherein you can deposit a set amount of money in a bank or non-banking financial company. Every deposit will be made for a particular period and rate of interest. It is considered as the easiest, and the safest method of investment.
Choose where to invest
When planning to start a fixed deposit, firstly decide where you wish to invest your money. You can choose to open a fixed deposit account in a private or state bank as banks offer a high level of security to the account. The FDs are secured up to 1 lakh by the RBI. If you choose to open a fixed deposit account offered by companies and financial institutions you can expect a higher rate of interest as compared to bank FDs. There may be a large number of companies providing FD schemes. You can choose the most reliable one by checking the credit ratings given by ICRA and CRISIL.
FD interest rates comparison
Compare the FD interest rates offered across the various banks which will almost be the same with very little difference. You should choose the one which suits your needs in the best way. If investing in a company pick the one which not only offers a high interest rate but also has a high safety rating. Fix on the tenure for which the amount needs to be invested. The FD interest rates for different tenures may be different, and you need to fix the one which can give the maximum benefit.
Higher Returns
Fixed deposits can be non-cumulative or cumulative. Non-cumulative FD schemes pay interest periodically viz. monthly, quarterly, half-yearly or on annually. It can be beneficial for pensioners and senior citizens who will get periodic payouts. On the contrary, cumulative FD schemes compound the interest. It can get you higher returns at the time of maturity and can help you in maximizing your wealth.
Beat the Inflation
As per the events in the past, it has been noted that there exists a correlation between inflation and interest rates. As inflation occurs, there is a rise in interest rates. So if you aim to get returns that beat the inflation, invest in short term FD rather than a long term one. To gain consistent returns and liquidity simultaneously spread the investment across varying fixed deposits. You need to build a ladder of FDs of varying tenures. For instance, if you are planning to invest an amount of Rs. 5 lakhs, split it into Rs. 1 lakh deposits each for one, two, three, four and five years duration. Re-invest the five year FD on maturity and the highs and lows of interest rate will be balanced and will increase liquidity.
