Every year, millions invest in fixed deposits (FDs) with the hope to get decent, safe returns on their capital. Investors often tie fixed deposit investments with major financial goals. Since the returns are almost always guaranteed, they can stop worrying about frequent monitoring and sleep peacefully while their capital grows.
However, ever since fixed deposit interest rates in India started decreasing, sensible investors have begun questioning whether FDs are really as lucrative now as they were previously. In fact, the current FD interest rates are almost at par with the inflation figures. And since inflation reduces your purchasing power, the effective returns from FDs are dismal.
The following sections contain time-tested tips to find and invest in the best-fixed deposit in India with high-interest rates.
Time-Tested Tips to Find and Invest in the Best Fixed Deposit in India
Look Beyond Banks and Compare Interest Rates
Generally, you can invest in three types of fixed deposit schemes in India – bank FDs, Non-Banking Finance (NBFC) FDs, and Housing Finance Company (HFC) FDs. Banks typically offer the lowest FD rates in India primarily because they spend huge amounts of money on maintaining branches and employees. Bank FD rates usually range between 2.5% and 6%.
In contrast, NBFCs and HFCs follow a lean service delivery model and offer better rates than banks. For example, PNB Housing FD interest rates start from 5.75% and go up to 6.85%, offering yields of up to 9.40%.
Hence, it is wise to compare the rates before investing in fixed deposits in India.
Choose the Tenure Wisely
Fixed deposit tenure usually ranges between one (1) year and ten (10) years. Although you can also invest in deposits with a maturity of less than one year, the interest rates are much lower than the inflation figures.
A quick scan of the top fixed deposit schemes in India shows that the longer the tenure, the better the interest rates. For instance, while the interest rate of a 1-year PNB Housing FD is 5.75%, the interest of a 10-year FD is 6.85%. Moreover, if you invest in a cumulative FD, the yield to maturity can extend up to 9.40%.
Hence, choosing the right tenure often determines the amount you can earn from a fixed deposit scheme.
Decide the Frequency of Interest Payments
Fixed deposit schemes are of two types – cumulative and non-cumulative. If you invest in a cumulative fixed deposit in India, you will get the principal and interest at the time of maturity. A non-cumulative FD scheme pays interest in fixed intervals, such as monthly, quarterly, half-yearly, and annually. You may choose a duration depending on your financial objectives. For example, opt for the monthly payout mode if you have to pay tuition fees or rent.
Although fixed deposits are liquid, meaning you may close the account and withdraw your investments at any time, you may have to pay some penalty for doing so. The penalty for premature withdrawal can be as high as 2% of the withdrawal amount. Hence, you should ideally divide your total investment into cumulative and non-cumulative FDs to avoid premature withdrawals.
Figure Out The Investment Mode
You may invest in fixed deposits online or offline. The online mode is more convenient than the offline mode. Besides providing industry-best FD interest rates, PNB Housing offers a doorstep service facility to online fixed deposit applicants. Moreover, the online mode saves you from the hassles of visiting a financial institution multiple times.
Although today’s investors have various options to invest their hard-earned money, nothing beats fixed deposits in India. Fixed deposits are flexible, rewarding, safe, and easy to invest in, making them a preferred choice for Indian investors.