Merely investing is not sufficient. You must also select avenues that yield optimal returns. The interest rate of your investment is a determining factor in this regard. It is essential to choose a scheme that shows promising potential. Therefore, many individuals opt for Fixed Deposits to ensure their investments have a solid foundation.
A Fixed Deposit is known for its steady and relatively good interest rates. It is also popular because of its easy-to-follow investment approach. However, as an investor, you must know what factors determine the value of the interest rates on FDs to make informed decisions. Below are some of them:
Type of Fixed Deposit
Besides Regular Fixed Deposits, banks offer various categories to cater to different investment needs. These include the FD for senior citizens, minors, Non-Resident Indians (NRIs), etc. They also get categorised based on functions and perks like Flexi and Tax-Saver. Each type has different Fixed Deposit interest rates.
For example, senior citizens usually get the highest interest rates on Fixed Deposits. By offering such rates, banks enhance customer loyalty and strengthen their relationship with this demographic. It potentially leads to more business opportunities in the future.
Duration of your FD
When you lock in your funds in an FD, banks use them to provide Loans to other customers. The longer the tenure offered, the higher the interest rates. As a result, you get lucrative returns on your locked finances. Hence, the Fixed Deposit term highly influences the interest rate. Determine your financial position based on your preferred returns and liquidity needs. That way, you will strategically obtain the best FD rates.
Your principal amount significantly influences your interest rates. A larger sum gives a higher percentage. Thus, investing in an FD is wise if you have surplus funds in your Savings Account. You can deposit higher investments monthly to enjoy a better interest rate quickly.
Senior citizens earn the highest interest through FDs to aid their post-retirement life financially. Hence, age is also a factor affecting interest rates. If you are above 60 years old, you should consider opening a Senior Fixed Deposit to enjoy such offerings. It lets you earn an added interest of 0.5 % to 0.75%. It is wise to check this on your Banking app for further clarity.
Usually, banks offer Term Deposits as fixed investment options. So, withdrawing from them before maturity results in a penalty deducted from the outstanding interest on your Fixed or RD Account. Although not significant, such charges negatively impact your final returns. Thus, you must choose the term carefully and tactfully.
Learning about the factors that determine the FD interest rate is imperative. It guides you in selecting the best-suited scheme based on your eligibility.
Keywords: Fixed Deposit, FD, Term Deposit