One of the preferred investment instruments in India are fixed deposits. Everyone, especially senior citizens, prefers parking their hard-earned funds in fixed deposits owing to the features such as safety, guaranteed returns, and more. The reason people rely on FDs is due to the monthly interest generated as the main or additional source of income. With some unique tools offered by the banks, you can determine the interest rates you will receive.

Despite the falling rates of FD over the years, it has remained the preferred option amongst all. Some prefer to opt for long-term deposits purely because they offer better prices than the short-term ones. But before you invest in a fixed deposit, there are some factors you should be aware of –

Select the interest payout

When you are filling the application form, you can opt to get the interest payout either monthly or quarterly. The funds get credited to your account on the date specified on the receipt. The FD rates offered annually by banks are attractive. Senior citizens tend to receive additional interest on their deposits. The other option of earning interest is through cumulative FDs. Here you can get the entire sum along with interest after maturity. You can check the interest you will get through FD calculator.

Reinvest interest rates

The returns on FD and interest received are different concepts. Many opt to reinvest the interest paid on their FDs. This means you do not make any withdrawals on the interest paid, thereby increasing the principal. If you opt for quarterly interest payments without withdrawing the interest, the bank adds your interest to the principal amount, and you end up paying interest on the compounded amount. If you repeat the process, the returns on the interest grow. They are best for those who are not dependent on income from the fixed deposit.

Premature withdrawals

There are times where you have the urge to break the fixed deposit. This happens you when you need urgent funds owing to emergencies or the other bank offer higher interest rates. Whatever the case, if you break the FD, you must pay the associated costs. If you opt for premature withdrawals, the bank allows you to make withdrawals for an interest lower than the actual applicable interest period that the deposit remains with the bank. Some also allow premature withdrawals on a pro-rate basis.

Calculation of interest

Before making any financial decision, investing in FD is like ticking off your budget and make them work towards your financial goals. Use the FD calculator before investing in one and plan your finances accordingly. You can compare different FD schemes offered by banks and other financial institutes. You also learn about the best returns you can receive at the desired tenure.