The most popular investment choice in India has been fixed deposits. Many individuals, especially senior citizens, park their hard-earned funds in FDs owing to the features like safety, guaranteed returns, and so forth offered by it. The reason one heavily relies on FDs is the monthly interest generated as the primary or additional source of income.
Using the FD calculator, you determine the interest rates you are assured of receiving. Despite the falling FD rates over the years, people continue to invest in them. Some opt for long-term deposits purely because they offer better rates than the short-term instruments.
But before you invest in FDs, be aware of the following facts –
- Interest payout
Once you fill the FD application form, you could either opt for monthly or quarterly interest. The money accordingly gets credited to your account. Banks offer attractive FD interest rates annually. Senior citizens receive additional interest on their deposits. The other option for earning interest rates is cumulative FDs where you get the entire sum along with interest, post maturity. You can check the interest you will receive using the calculator as well.
- Reinvest interest rates
The return on FD and interest received are different concepts. Many choose to reinvest the interest paid on their FDs. It means you need not make any withdrawals on the interest paid, thereby increasing the principal. If you go for quarterly interest payments without withdrawing the interest, the bank adds interest to your principal amount, and you pay interest on the compounded amount. When you repeat the process, the returns on interest grow. They are ideal for those who do not depend on FDs for income. It makes sense to reinvest on the interest drawn over higher returns.
- Premature withdrawals
There are moments where you may be tempted to break the FD. This happens when you need funds for emergency owing to unforeseen scenarios or when the other bank offers higher interest rates. If you break the fixed deposit, you might need to pay the associated costs. If you opt for premature withdrawals, the bank allows you to make a withdrawal for an interest lower than the actual applicable interest period. Some enable premature withdrawal on prorate basis.
- Calculator
Like other financial decisions, FD investments are like ticking one’s budget and making it work towards the financial objective. Using the FD calculator before investing in one assist in anticipating and planning finances. You can also compare different FD schemes offered by banks. You learn about the best returns you receive at the said tenure.