What are the things you should keep in mind before investing in Fixed Deposits?

Fixed Deposits

When people look for investment options, they usually stumble upon two options: Fixed Deposits and Recurring Deposits. When you opt for a Fixed Deposit investment, you just invest only once during the entire tenure of your Fixed Deposit. But when you opt for recurring deposit, you have to invest a certain amount every month for the entire tenure.

Everyone knows that investing in Fixed Deposits is one of the most beneficial investment options of all time. You will earn a guaranteed returns on your Fixed Deposits and they are less risky as compared to all the other investments options, which is why people opt for Fixed Deposit investments. But, there are certain things that you should know about before you invest your hard-earned money. They are:

1. The financial institutions and their credit ratings:

There are various banks as well as Non-Banking Financial Companies (NBFCs) who offer the Fixed Deposit services. This is one of the most important things that you need to ponder upon. Like mentioned above, you will be investing your money only once during the entire tenure of the Fixed Deposit and this money won’t be a small amount. When you invest a large amount of money in a Fixed Deposit, you will want to be sure about the company that you want to invest with. It is necessary that you check the credit ratings and the reputation of the company in the market. The AAA is the highest rating awarded by the Credit Rating Information Services of India Limited (CRISIL), which means that if you are investing your money in Company’s Fixed Deposit. The company is as good as a bank.

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2. The interest rates offered:

This is the second important thing that you need to focus on. The rate of interest on Fixed deposit offered by different banks and financial institutions differ and no two financial institutions will ever offer the same rate of interest. Whenever you choose to invest your money, you should pay attention to the rate of interest that the banks and the Non-Banking Financial Companies are offering. The Non-Banking Financial Companies offer a higher rate of interest as compared to the banks. The higher the interest rate, the more money you will earn on your investments.

3. You cannot break your Fixed Deposit:

One of the drawbacks of a Fixed Deposit is that you cannot break it before the end of your tenure. If you do so, you will have to pay a penalty charge which might cost you a lot. In such a situation, you can choose to avail the overdraft facility. When you avail an overdraft facility, you can take a loan of up to 90% of the invested amount. You have to pay an interest on the amount that you have borrowed.

4. The tax benefits:

If you earn more than INR 10, 000 as interest on the amount that you have deposited, then you will have to pay tax on the extra income that you earn. The amount of tax that you have to pay is dependent on the tax bracket that you fit into. If you have a large amount of money that you want to invest, then one way to avoid paying tax on the extra money is by splitting the money into smaller amounts and investing these smaller amounts into different Fixed Deposit schemes that have different tenures. By doing so, not only will you earn benefits on various Fixed Deposits, but you will not have to break all your Fixed Deposits when needed.

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The Fixed Deposit investment is the best investment option because it also offers additional benefits to its customers. This is one of the best options for people who are looking for some extra income.