When you invest in a fixed deposit, the deposited amount earns interest at a fixed rate. The interest rate remains constant throughout the tenor irrespective of the changing market conditions.
As the interest rates offered by banks and finance companies vary, you should compare the FD rates before depositing your savings in an FD plan. Here are some key factors that you must consider before investing in an FD:
Declining bank FD rates
The bank FD rates have been decreasing constantly this year due to the economic turbulences that the whole world is going through. RBI has been reducing the repo rate and as a result, bank FD rates have also reduced.
As the bank FDs are not offering high-interest rates, you can think of investing in company FDs that usually offer a better FD rate as compared to bank FDs and post office FDs. For instance, on investing in a Bajaj Finance FD, you will get an FD interest rate of up to 6.85%. This is one of the best FD rates in India and much higher than the bank FD rates that are usually in the range of 5% – 6%.
With Bajaj Finance FD, you also get a 0.25% additional interest rate if you are a senior citizen. If you invest online, you can also earn an additional interest rate benefit of 0.10%. Moreover, you have the flexibility to choose between cumulative and non-cumulative FDs and the frequency of periodic interest payouts. You can use an FD calculator to check the best FD rates in India and then make your decision.
The below table shows the difference in returns between bank FD and Bajaj Finance FD. The average bank FD rate is taken as 5.5% as it ranges between 5 and 6%.
Cumulative FD
If you go through the FD plans provided by different financiers, you will notice that the financiers offer a higher interest rate if you choose a longer tenor.
Therefore, if the FD rates are not as expected you can at least invest in a cumulative FD of a longer tenor. In case of a cumulative FD, as the interest gets compounded quarterly, the interest accumulated in the previous quarter is added to the principal amount. This new amount is taken as the principal while calculating the interest for the next quarter. Thus, the interest is compounded quarterly and you get better returns at maturity. This compounding feature of a cumulative FD has a snowball effect on your investment.
Ladder your deposits
The multi-deposit facility from Bajaj Finance lets you invest in multiple FDs with ease as you don’t need to make separate payments for each deposit. A single cheque needs to be submitted for investing in multiple FD plans. Whenever you need urgent cash, you can break only one or a couple of FDs, without disturbing other FDs. This strategy will not only help you to cope up with the inflation rate but you will also get more liquidity points that can fund your expenses in case of an emergency.
By dividing your corpus into multiple FDs of different tenors, you will get an opportunity to average out the interest rate fluctuations over a period of time and invest at a higher interest rate whenever there is an opportunity.
Bajaj Finance FD has received high ratings for stability and safety by credit rating organizations such as ICRA and CRISIL.
While investing in an FD, you can choose a cumulative FD that provides the accumulated interest and principal amount at maturity or you can invest in a non-cumulative FD to receive the interest at regular intervals. Before investing, you must compare the FD rates by using an FD calculator. If you don’t get the interest rates as expected then you can deposit your corpus in a cumulative FD of longer tenor to benefit from the compounding of interest. For getting better returns you can invest in a company FD like Bajaj Finance FD that offers one of the highest FD rates in India. You can also split your corpus into multiple FDs to cope up with the rising inflation rate and the multi-deposit facility from Bajaj Finance lets you ladder your deposits with ease.