Investing Money? Top Factors to Consider Before Investing in a Fixed Deposit

Posted on Friday, February 24th, 2023 | By IndusInd Bank

A fixed deposit is a reliable and secure form of investment. All the same, you should consider a range of factors before putting your money in one. These factors include inflation, interest rate, FD tenure, premature withdrawal, interest pay-out options, and tax deduction.

In India, putting money in a fixed deposit (FD) is like heeding a piece of wisdom passed down through the generations. A form of investment that has seen millions repose trust in it for decades, fixed deposits remain attractive to risk-averse and risk-tolerant individuals alike. Moreover, a fixed deposit account is extremely simple in the way it works, contributing, in no small measure, to its popularity even among people unacquainted with the world of finance and banking. But putting your hard-earned cash in any money-growing scheme represents a modicum of risk.  Exercising caution before you take that leap of faith is imperative. Even for something as reliable as an FD, it is essential to be aware of all aspects in order to make sure your capital remains secure and you earn the expected returns.

So if you are planning to invest in a fixed deposit, here six critical factors you must keep in mind.

1. Rate of Inflation

Inflation erodes the purchasing power of money over time. It is therefore important to estimate your FD returns after taking the rate of inflation into account. For instance, if the rate of inflation is 6% and your FD offers you an interest of 7% per annum, the FD amount is growing by an additional 1%.

2. Rate of Interest

Although unaffected by market conditions, the FD rate of interest is not the same across banks. It is thus prudent to shop around and compare the rates of interest offered by different banks before opening an FD account.

It also must be noted that the interest rate on your FD varies with the tenure, with longer terms – ranging between 2-5 years – usually earning a higher interest.

3. The Tenure

Leading banks nowadays offer tenures ranging from 7 days to 10 years. Since different investors have different requirements, you should choose the tenure carefully, keeping your personal preferences and liquidity needs in mind.

4. Interest Pay-Outs

With a fixed deposit account, you may choose the frequency of your interest pay-outs –monthly, quarterly, half-yearly, annual, or at maturity. It must be borne in mind that FDs are categorised as cumulative and non-cumulative depending on the interest pay-out. In the former, the interest compounded on the invested amount is paid at the time of maturity; in the latter, interest pay-outs are given at chosen intervals.

5. Premature Withdrawal

In case an emergency strikes, you do have an option of making a partial or complete withdrawal from your FD before the maturity date. Premature withdrawals are typically subject to a penalty which varies from bank to bank.

6. Tax Deduction

Your FD interest income will be subjected to Tax Deducted at Source (TDS) if it exceeds INR 40,000 in a year. With a tax-saver FD, you could avail of tax benefits of up to INR 1.50 lakh in a financial year. However, this type of FD comes with a lock-in period of 5 years and cannot be withdrawn until maturity.

Why Choose IndusInd Bank Fixed Deposit?

An IndusInd Bank fixed deposit has all the classic benefits expected of an FD. It is highly secure, the interest rates are attractive, and there is a good deal of flexibility offered in terms of tenure, amount, and interest pay-out options. IndusInd Bank also offers Tax Saver FDs for those looking at the tax-saving aspect. 

Booking an IndusInd Bank FD itself is a simple and hassle-free 3-step process requiring only basic KYC documents such as PAN and Aadhar card.

So, don’t let your funds sit idle; invest in a fixed deposit today!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.