How to Select the Best Fixed Deposit in 2021?

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Are you looking to invest in a financial instrument that can offer both the safety of your capital and high rates of interest? If so, then you must consider a fixed deposit account. As they are not subject to market risks and fluctuations, fixed-term deposits are among the most secure investment tools in the market. Hence, they are the preferred investment option for risk-averse investors and are often referred to as financial safety nets.

Furthermore, fixed deposits are perfect for long-term financial goals such as saving for higher education, marriage or securing your child's future. They are also suitable for senior citizens as they guarantee principal repayments and fixed interest income. However, if you are considering investing in a fixed-term deposit, there are some factors that you must keep in mind. Read further to learn how to select the best fixed deposit plan in 2021.

1. Compare Interest Rates

The first thing to consider while selecting a fixed-term deposit scheme is to compare the interest rates offered by multiple lenders. The interest rate varies depending on various factors like the deposit amount, age of the candidate and chosen tenure. Pick a lender that can offer an interest rate of 6% or above, along with flexible tenure. Trusted institutions such as IndusInd Bank offer highest FD interest rates in the market. IndusInd bank FD rates go up to 6.5%, which is incredibly high and more than their competitors.

2. Check the Credibility of Lender

Before selecting an FD based on the interest rates, and depositing your hard-earned money, make sure to review the credibility of the FD provider. A high rate of interest is a huge perk, but you must check the authenticity and transparency of the fixed deposit scheme too. Examine the safety ratings of the FD provided by organisations like CRISIL and ICRA. It is always a good idea to select an old and reputed financial institution with high ratings and reviews.

3. Application Procedure

The application method can vary from one FD provider to another. While selecting the lender, check whether they provide an online application procedure to open an FD from your own home and don't need to visit the branch. It is best to choose a lender that offers both online and offline application options.

4. The Penalty Rates

Due to some emergency or severe cash crunch, you might have to make a partial withdrawal or break your fixed deposit before maturity. Some FD providers charge a heavy penalty or decrease the interest rate if you withdraw the deposit amount before the lock-in period ends. Therefore, you must analyse the penalty rates before making your choice.

5. Choose Between Cumulative or Non-cumulative FDs

Depending on what your financial goals are, choose whether you want periodic returns or interest at maturity. Non-cumulative FDs offer monthly, quarterly or semi-annual returns that are perfect for senior citizens looking for regular income through FDs. On the other hand, cumulative fixed deposits allow you to compound your interest over the tenure and provide your earnings at maturity. Also, cumulative fixed deposit accounts offer high-interest payouts as compared to their counterpart.

Final Thoughts

Despite the wide variety of investment opportunities available in India, fixed-term deposits continue to be the most popular choice. However, to make the most of this financial instrument, you must select the right FD plan and provider. Consider all the points discussed, and make sure to choose the fixed deposit that aligns with your future plans and goals. Choosing the right investment tool is crucial to safeguard your savings and earn the best returns.