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Monday 15 July 2024
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What aspects to consider when opening an FD Account?

What aspects to consider when opening an FD Account?

Banks are a boon to the economy and the public. They help in generating wealth as well as offer financial products for investment. They encourage you to save for the future through Bank Accounts and other investment schemes that guarantee returns. Our older generations mostly prefer investing in them as they are safe from market fluctuations. 

The most popular investment vehicle is a Fixed Deposit. They may offer lower returns than market-linked instruments but are the safest since the interest rate remains constant throughout the tenure, irrespective of market conditions. Hence, these are ideal for long-term investment and financial security.

Aspects to consider

The highest FD interest rates offered are 7.5%, leading to better returns when evaluating and comparing investment options. You can open the Deposit Account for seven to 10 years. Consider these aspects before investing:

Insurance coverage

All private, public, and small finance banks fall under the Deposit Insurance and Credit Guarantee Corporation scheme, providing a Deposit Insurance of up to Rs. 5 lakh. If the bank fails to pay the money at the end of the tenure, the DICGC pays the money. This concept makes small investments safe. Banks are also offering this investment vehicle on their Banking app.

Interest

An essential factor while investing in a Deposit Scheme is the interest rate. Compare the rates offered by several banks before investing in the scheme. You can use online tools like deposit calculators to estimate the returns at the end of the tenure.

Bank credibility

This is a vital factor before opening an FD. Preferably, opt for banks with A-rated schemes and consider them from organisations like CRISIL and ICRA. These represent a bank’s current opinion on the relative credit risks associated with the rated debt obligations.

Loan against Deposit

Specific lenders allow you to apply for Loans against the amount in the Term Deposit. You can consider opening it with such a bank if you require funds. They are the most sought-after saving scheme for millions of investors in India and offer higher interest rates than Savings Accounts.

Premature withdrawal

It is essential to select a bank that offers a premature withdrawal facility when you invest in a Fixed or Recurring Deposit Account. It allows you to withdraw the money in case of any emergencies. However, the bank incurs a penalty in this case.

Tax exemptions

Remember, the amount received from the FD Account in interest is fully taxable. The bank deducts TDS if the interest earned in a financial year is more than Rs. 10,000, per the Income Tax laws. You should submit Form 15 G or Form 15 H to your bank to ensure the TDS does not deduct.

These aspects ensure that your Term Deposit serves its purpose of attaining goals and creating savings. If you want to open one, refer to them carefully.