Pointers to ensure you keep your Fixed Deposit intact and tip the financial scale in your favour

Any sort of saving goes a long way in establishing good finances. Whether you are putting money away for a special day or are looking to retiring in style, an FD serves as a good saving option. A Fixed Deposit in India is open to anyone of any age. These deposits are considered by many to be one of the safest methods of saving and investment available today. That being said, ample research is needed before you hang up your boots, to determine factors like where to park your finances and what benefits your plan should have.

To best figure out how to maximise your returns, let’s delve into what a Fixed Deposit is and how you can make use of the best interest rates on FDs in the country.

What is a Fixed Deposit?

An FD, or a term deposit, comes into play if you have extra cash that you are looking to invest. After you deposit the money, it begins to earn interest depending on the duration and interest rates applicable. The tenure for these deposits can range anywhere from 7 days to 10 years. After the plan matures, the bank or NBFC will hand over the principal amount as well as the interest earned. This feature is the primary reason why FDs are considered to be reverse loans; you give the bank or NBFC your money and it returns it with interest.

Fixed Deposits are the preferred choice for saving because of the tax benefits investors get, when invested right. Also, this option is open to senior citizens, along with added benefits. Another reason it is popular is the risk factor involved, or rather the low-risk factor. With the stock market, there is a risk of fluctuating prices. Here, that risk is eliminated.

What can you expect with an FD

With a Fixed Deposit, you open the doors to a number of its benefits and features, like:

  • Applying for a loan against your FD
  • Getting a credit card issued against your Fixed Deposit
  • Opting for convenient “auto-renewal” of your FD
  • Easy withdrawal of your deposit before its maturity, albeit at a certain penalty fee
  • Choice of a tenure duration that best suits you
  • Declaration of up to two nominees, who will have the FD transferred to them in the event of your demise

Why premature withdrawals are not in your best interests

While easy withdrawals are listed as one of the benefits, it doesn’t mean it is something you should do if there is a way to prevent it. Unless you are facing dire financial circumstances or a situation where you are in absolute need of liquidated finances, try not to avail of this facility.

Prematurely withdrawing from an account, or breaking a Fixed Deposit, would result in your getting only the interest applicable up until the date of withdrawal. If the timeframe is a short one, since you deposited the money, then you might not even be applicable to receive any interest. The amount you get will also depend on the type of interest your deposit has—simple or compound.

If you withdraw your investment with compound interest, you will be privy to only the portion of interest that has been credited to your account. If the account you opted for has simple interest rates tied to it, then you might receive even lower returns.

What happens when you prematurely withdraw

If, or when, you decide to withdraw the money, there are a few things to keep in mind. Many banks and financial institutions charge a penalty for early withdrawals. While this could be a minimal fee, there is more loss to be had when you break the account. Apart from the fee, you will lose out on a considerable amount of interest as well.

Not all banks have the same penalties levied to investors who withdraw. Depending on the bank, or financier, you are in service with, you might have to pay a hefty fee or might walk away with no charges.

Alternatives to breaking your FD

There are situations that arise time and again that call for financial aid. When those situations pop up, getting your monetary plans in order can be the only viable solution. If you ever find yourself in such a position, consider all your options before you cash in on your Fixed Deposit. To help you pay that down payment or medical bill, research other places from where you can materialise money.

If getting a credit card is not what you’d like to do, you can use your Fixed Deposit to help get a loan sanctioned. This way, you keep your investment intact and successfully continue earning good returns, through the interest on your principal. The upside to applying for a loan with an FD in your pocket is the lack of paperwork required to get the process started. All you will have to do, when looking for a loan, is visit the bank and request the bank for the loan, gaining access to funds relatively quickly.

Fixed Deposits allow you to inculcate the habit of saving and investing. Based on the interest you receive, you can choose to reinvest the amount to better your returns. In the long run, if immediate money is what you are looking for, you can also opt to forego the reinvestment option and have the interest directly credited to your account. But in doing so, you also forego the higher returns that come with reinvesting.

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