Fixed Deposits FDs are a safe and easy way to put your money to work. They give you steady returns, so you know what to expect. Whether you are a novice investor or want to dodge market risks, FDs are a good choice.

But not all FD schemes are the same. To get the most from your FD, it is essential to look beyond just the rate. Considering other factors like the issuing institution’s stability and the kind of flexibility the scheme offers is equally important.

Let’s understand more about these three key areas:

Interest Rates

Bank FD interest rates are more than just numbers. In fact, when people think of fixed deposits, they mainly focus on the interest rate. After all, the interest rate dictates how much their invested money will grow over time. However, it’s important not to simply chase the highest interest rate you see from afar.

Banks and non-banking financial companies offer different interest rates. Sometimes, this can happen even within the same institution. Factors like the tenure of the deposit can be attributed to this difference. For example, if you choose a longer FD tenure, it may result in higher rates. However, that does not always mean that you should lock in for the longest term possible.

Bear in mind that banks and NBFCs at times hike their rates to attract new customers or deposits. This can be observed during certain deposit periods, and not always. So, high bank FD interest rates may very well be a temporary offer, not a long-term norm. Also, fixed deposit rates for senior citizens tend to be slightly better, around 0.25% to 0.50% more. This is worth considering if it applies to you.

Stability

The safety of your principal amount must be considered when investing in FDs. Although fixed deposits are generally safe, you must not overlook the financial health of the institution offering the FD.

If you are looking for safe, reliable options, opt for large private banks or government-owned banks. They are safe bets since they are regulated tightly and often have a long track record to back their credibility.

Another exercise you can do is checking the credit rating of the institution. Credit rating agencies like CRISIL, ICRA, and CARE assign ratings that reflect the institution’s financial strength. To put it simply, higher ratings indicate lower risk. You can often find this information on the bank’s or NBFC’s website or through financial news sources.

Example:
Mr. Sharma, a 67-year-old retiree, came across an NBFC offering fixed deposit rates for senior citizens at 8.5%. This was much higher than what other banks were offering. Tempted at first, he checked the institution’s credit rating and found it to be low. Recognising the risk, he opted for a safer bank FD with a slightly lower rate. This way, he prioritised stability over returns.

Flexibility

We all know that FDs offer steady returns. But not all FDs offer equal flexibility.

Some FD schemes allow premature withdrawals. But there is, more often than not, a penalty in the form of reduced interest or processing fees. Other schemes may offer the option of automatic renewal or partial withdrawals. These options can make a significant difference, allowing you to withdraw funds before the tenure ends.

The other thing to think about is how long you want to lock in your money. FD schemes can be as short as a week or as long as 10 years or more. Think about when you will need the money and your financial goals. If you lock in your money for a very long time, you could miss better interest rate offers in the market if things change. You can get the best of both worlds by spreading out your money into multiple FDs with different durations.

This ladder plan can give you better returns and good liquidity.

Tips for Smarter FD Investing

• Avoid focusing solely on high bank FD interest rates without assessing the stability of the institution.
• If eligible, opt for higher fixed deposit rates for senior citizens.
• Match your FD duration with your financial needs.
• Split your investment into multiple FDs with staggered maturities.

Final Thoughts

FDs help your savings grow at a steady rate, but choosing the right scheme comes down to striking the right balance between interest rate, safety, and timing to suit your goals.