Fixed deposits have been a safe savings avenue for a long time – even the most conservative of investors are keen on this financial instrument. After all, if you invest in fixed deposits, they help you grow your savings, without risk to your principal amount. It is the best of both worlds for those who aren’t too risk-inclined. Even for the ones with a fascination and risk appetite to invest in the market-linked securities, fixed deposits are a good addition to the portfolio. It is viewed as a place to park money with the objective of preserving the capital.
Fixed deposits have been a preferred destination and investment tools, so when you decide to invest in fixed deposits, the question is: how much money are you going to park in this investment? This will be a different figure for everyone, depending on the financial goals, the income and savings. So the answer isn’t in a ballpark figure but in the key factors you need to consider that pertain to fixed deposits. While FDs have been the conventional investment tools, you need to keep some things in mind before going for one:
- Interest rates, tenure, frequency of interest payments and other nitty-gritty: These stipulations are the first parameters to consider how much you are going to invest in a fixed deposit. If the interest rate offered is decent, then you might want to invest a larger sum in FD. For instance, Finserv MARKETS offers fixed deposit interest rates starting from 8% which can go up to 8.95%, and the fixed deposit interest rates for senior citizens are as high as 0.35%, over and above the existing rates. The fixed deposit interest rate keeps fluctuating, so the best way to manage this interest rate risk is by using the ladder approach whereby you invest in fixed deposits with varying maturity tenures, say 1, 3 and 5 years.
Further, the frequency at which the interest is paid out can be chosen by you – under a non-cumulative fixed deposit available on Finserv MARKETS, you may choose to opt for monthly, quarterly, half-yearly or annual interest payments. Alternatively, in the case of Cumulative FDs, the interest is compounded every quarter or annually, and paid at the time of maturity.
- Spread your investments: As mentioned above, if you are planning to open multiple fixed deposit accounts, make sure you keep some variety in the durations, amount etc.
- All about premature withdrawals: Fixed deposits allow you to withdraw the amount before the maturity period. However, they charge a penalty on the amount of interest. This means that the principal return is the same, but some amount is deducted on the decided interest rate. You can choose the lock-in period on Finserv MARKETS between 1 and 5 years, but if your income needs change or there is an urgent requirement for funds, you can always close the account before the final date. Unless urgent, it is advisable not to withdraw from an FD account before its maturity.I
- Interest earned is taxed as your income: The interest income you receive on fixed deposits are added to your total income for the purposes of computation of the income tax. Therefore, if you invest a huge sum with the idea of earning more through interest, it would be worth looking at how much gets taxed. If the alternative of tax-efficient mutual funds and other such financial instruments sound better, then you may not want to invest a gigantic sum on the fixed deposits. However, one exception of the income tax-saving FD that is specially created with the purpose of saving tax.
Once you have made up your mind about the magnitude you intend to invest in a fixed deposit, you can easily open an account with Finserv MARKETS, where you can get attractive and assured rates of interest for your money, you can choose the frequency at which you get it and access all the account details online. Fixed deposits on Finserv MARKETS also offer special interest rates for senior citizens, existing customers and group employees.
As a thumb rule, it is always a better idea to park your surplus funds in a fixed deposit than keeping it idle. But how much you choose to invest and how you choose to divide this amongst other instruments is dependent on the above factors and individual priorities.
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