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5 Facts To Keep In Mind Before Investing In High Interest Fixed Deposits

By Author: Natasha Raikar
Total Articles: 4

A fixed deposit is a financial tool that allows you to invest or deposit your money for a pre-determined period. You get a higher rate of interest on the returns at the end of the tenure. Fixed deposits are the easiest and safest investment options if you wish to save up your hard-earned money for the future. However, before you make a move, the following are the 5 things that you must keep in mind:

• Fixed rate
The interest rate on the returns depends on the amount you invest, the period, and the bank/financial institution you choose to invest in. The rate of interest on your fixed deposit tends to change over time. Once you invest your money, the interest rate on the fixed deposit is stagnant. You will have to pay the same interest for the chosen period. You can choose to pay the interest in regular intervals – on monthly/quarterly/half-yearly/annually basis – or you can pay them at the time of maturity.

• Tenure
Banks that offer high interest fixed deposit allows you to credit the money as per your requirements. The investment period ranges from a minimum of 7 days to a maximum of 10 years, and the minimum amount of investment is as low as INR 1,000, the maximum being INR1.5 lakh.

• Premature withdrawal
Although having a fixed deposit account is extremely beneficial when it comes to saving money and receiving high-interest returns, such an investment does not allow the investor to withdraw money before the maturity. If you ever need to take out cash from your fixed deposit account, you have to pay a nominal charge of 1 per cent on the current rate of interest as a penalty. In such an event, the investor will need to submit a letter requesting the premature withdrawal of money from the account.

• Loan against Fixed Deposit
A credit against the existing fixed deposit is one among the various and quickest way to raise short-term debt. The different banks offer overdraft loan facility at different rates. The rate can be as high as 90 per cent of your fixed deposit value. Ideally, the tenure for which you are taking the loan should be the same as that of the fixed deposit and should not exceed the given term.

• Tax savings on fixed deposits
To save your fixed deposit returns from tax deductions, you can invest in a tax-saving fixed deposit account. They come with a lock-in period of 5 years, before the completion of which you cannot withdraw any amount from the FD account. If you break your fixed deposit before the lock-in period, you will not be eligible for any tax benefits.

These are some of the critical facts, which you must consider before investing in high interest fixed deposits. Once you have understood what fixed deposit is all about, you can compare different banks to look for the best interest rates.

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