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Planning to invest in FDs in 2018? Five things you shouldn’t miss

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Planning to invest in FDs in 2018? Five things you shouldn’t miss

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Why should you pick a company fixed deposit over a bank FD? What added benefits should you look for in your fixed deposit? If you’re looking to invest in this tried-and- tested instrument this year, here’s an overview of 5 things that you must pay attention to.

1. Take a look at the Interest Rates
Considered safe and easy to operate, fixed deposits are an easy way to make your foray into investments. But, make sure you pick company FDs over bank FDs. This is important because both fixed deposits don’t carry the same rate of interest. Broadly speaking, a bank FD offers you around 6% interest, on the higher end of the spectrum. On the other hand, a company FD will offer you over 8%.

So, it makes more sense to invest in the latter. Also, even in company FDs, the interest rate will vary depending on whether you pick a cumulative deposit or a non-cumulative FD. The former compounds the interest and so, you are able to earn more. Similarly, a non-cumulative FD with a half-yearly payout will offer better returns as compared to one with monthly payouts.

2. Examine the Additional Benefits:
Ensure that you pick an FD with added benefits. You can look for features such as a low deposit amount and flexible tenor that offers easy liquidity. There are also customer-specific deposits such as FDs for senior citizens. These offer you better benefits, and usually, a higher rate of interest.
Apart from offering a high rate of interest of 7.85%, or 8.10% for senior citizens, it also gives you the option to start one with just Rs.25,000. Besides, if you need finance at a later date, Bajaj Finance also allows you to take a loan against your FD  by paying a slightly higher interest rate than what your deposit is earning.

3. Understand the Impact of Taxation:
Understanding the taxation rules pertaining to FDs will allow you to invest in them smartly. Depending on your tax slab, you have an obligation to pay income tax if the interest that you earn from your FD exceeds Rs.5,000 within a year. If your total income is lower than the tax slab, you can submit form 15G or 15H (for senior citizens).
This will make the total amount deductible. You can also save tax when you invest in tax-saving fixed deposits that have a fixed lock-in period of 5 years. But, remember that you can’t make premature withdrawals or taken a home loan against this fixed deposit.

4. Check terms for Premature Withdrawals
You must also examine FDs to ascertain their liquidity before you select one. Usually, you have to pay a premature withdrawal penalty if you want to break the FD before the tenor is up. Be sure to examine this fee across lenders and ensure that you are not picking one that comes with a high premature withdrawal fee.

5. Know the Extent of an FD’s safety
Corporate FDs do not have deposit insurance but you can gauge the extent of their safety by looking at their credit ratings. These ratings indicate how good the company is at returning your principal and interest at the time of maturity.

Agencies such as CRISIL and ICRAA award ratings to FD providers. So, be sure to check these ratings before applying for a fixed deposit. FD has CRISIL’s MAAA and ICRA’s FAAA rating, both of which indicate high stability.
Armed with these 5 guidelines, picking the best fixed deposit is sure to be an easier task. Select one with a high rate of interest, added benefits and easy liquidity terms to make the most of your investment.

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