Term Deposit FD – 5 Important Things to Keep in Mind When You Apply

A term deposit is a deposit scheme in which you can invest a lump sum amount for a fixed period during which the deposited amount earns interest at a fixed rate. Term deposits which are also referred to as fixed deposits are provided by banks and NBFCs. You can also invest in a post office FD plan for receiving similar benefits. 

It is obvious that with a higher FD interest rate, you can earn more interest at maturity. Therefore, the rate of interest at which an FD is offered is of prime importance. However, you must also keep these 5 things in mind while applying for an FD:

Account opening process

• For opening an FD account, you will have to visit the branch office of the respective bank. However, some banks and finance companies also provide an online account procedure for the same.

• For instance, you will find an online FD form on the portal of Bajaj Finance. This helps you to complete the account opening formalities from the comfort of your home.

Cumulative & Non-cumulative FDs

• Cumulative and non-cumulative FDs are the two FD types that you can choose to invest in. A cumulative FD provides the total interest and principal amount only at maturity. Therefore, you can re-invest the principal amount along with the interest earned at the end of tenor and gain from the compounding of interest.

• A non-cumulative FD credits the interest earnings directly to your bank account after every month, quarter, six-months or a year. Therefore, it is suitable for retirees who need some amount every month to cover their regular expenses.

• You can check the interest rates applicable on both cumulative and non-cumulative FDs by using the FD calculator monthly interest that is provided on the website of respective bank or NBFC. This tool will also give you an exact estimate of the periodic interest payouts.

FD tenor

• The FD tenor can range between 12 and 60 months depending on the bank or finance firm in which you are planning to open a fixed deposit account. Some banks also allow you to lock-in the principal amount up to 10 years.

• Longer tenors might take away the opportunity of investing at a higher interest rate whenever an opportunity arises in the future. Instead, you can divide your funds in FDs of different tenors and types to ladder your deposits. This means that you can break one or more FDs during financial emergencies instead of breaking the entire investment.

• Bajaj Finance allows you to open multiple fixed deposit accounts with a single cheque. The tenor, principal amount, and FD type can be different for each of these FDs. You get a 0.10% additional interest rate on renewing an FD and the option of auto-renewal of fixed deposits is also provided.

Withdrawing an FD prematurely

• If you withdraw an FD before maturity, a deduction of 1-2% in the interest rate can be charged as a penalty depending on the bank in which you have deposited your savings. Therefore, you need to choose an FD plan that deducts the lowest percentage as a penalty.

• NBFCs like Bajaj Finance provide collateral-free loans on your fixed deposit. Therefore, you do not have to break an FD prematurely.

Safety of deposits

• Company FDs provide higher interest rates than bank FDs but not all of them are as safe as bank FDs. Therefore, you should only invest in those company FDs that assure the safety of your deposited amount.

For example, credit rating organizations like ICRA and CRISIL have rated Bajaj Finance FDs highly for their safety and stability. Also, interest rates up to 7.85% and the flexibility of choosing a tenor up to 60 months make it an ideal investment option. Moreover, senior citizens get 0.25% additional interest rates on booking an FD. 

A term deposit is an investment option that provides fixed returns once you deposit your savings for a fixed period. Since the interest rate is also fixed, you can predict the actual returns on your invested amount before investing by using an FD calculator monthly interest. Apart from the interest rate, you must also check the tenor, FD types, liquidity options, the safety of FDs, and account opening methods that are offered by various banks and finance companies these days. Bajaj Finance provides interest rates up to 7.85% on their FD plans and they also provide the option of investing in an SDP plan that offers FD interest rate prevailing on the deposit date.