Complete guide on how to select best FD plan in 2022

Investing in fixed deposits or FDs is one of the safest options if you want a stable but assured return. You won’t find a better scheme to invest your funds in if you are looking for minimum risk and unparalleled safety. These days, almost all banks are offering FD schemes with lucrative offers. So, if you are wondering how to select the best FD plan, keep reading. 

This article is a complete guide on how to select the best fixed deposit plan in 2022. So, let’s start. 

How to select the best FD plan:

Generally, a fixed deposit investment scheme offers a 5.50 to 6.50 per cent interest rate. Moreover, you can also invest your funds in as low as 7 days to 10 years. Because of these benefits, people prefer FDs over various other investment plans. 

While the interest and tenure part is pretty straightforward, you must check the fine print before investing your funds in FDs. Different banks have different terms that can affect your investments in FDs. So, let’s see some tips to help you choose the best FD plan with higher returns. 

The credibility of Banks and NBFCs 

When you invest your money as a fixed deposit in a bank or financial institution, you entrust the banks with your money. The tenures of FDs are relatively longer than any other investment scheme. So, you must ensure when the FD matures, the bank should be there to give the return. 

You can check the safety rating of any fixed deposit scheme by matching the ICRA’s MAAA rating or CRISIL’s FAAA rating. As a thumb rule, the higher the rating, the more trustworthy the plan. 

Moreover, try to open an FD account in a bank instead of any other financial institution. Generally, banks offer a higher interest rate on FD than savings accounts.

Interest offered: 

The interest rate on fixed deposits usually differs from bank to bank. However, banks can’t offer whatever interest rate they want on FD. The Reserve Bank of India regulates the interest rate on FDs. The RBI guarantees a return of up to one lakh against the insolvency of banks. 

So, while the banks may offer a lower interest rate on fixed deposits compared to corporate and other NBFCs, you get assured returns. So, it would be better to choose a bank over a corporate and NBFC if you are looking for the best FD plan. 

Reinvestment on interest earned: 

Banks offer both cumulative and non-cumulative deposit options in FDs. You can reinvest the interest earned on the FD with a cumulative deposit. On the other hand, in a non-cumulative deposit, the bank regularly deposits interest earned on your FD in your account. So, depending on your financial goal and stability, choose the bank that offers your chosen scheme. 

For example, if you want a monthly payout from your investments, you should go for the non-cumulative options. Otherwise, investing in the earned interest might be a better option. You will receive the final amount in a cumulative FD, including the successive interest earned upon maturity. 

Withdrawal Penalty: 

One of the downsides of most FDs is the penalty associated with premature withdrawal. Banks don’t like it if you break your FD midway and there is a penalty. So, you can’t know when a financial emergency can strike you. You can choose the bank that lets you withdraw money from your FD. 

The penalty for premature withdrawal also varies from bank to bank. Most banks charge a penalty by lowering the interest rate on FD by 0.5 to 1 per cent. 

Many banks and financial institutions also offer the facility of partial withdrawal. However, each bank has specific criteria you must fulfil if you are looking for premature withdrawal without a penalty. 

So, note that the best fixed deposit plan lets you withdraw money from your FD partially or fully without incurring a penalty.

Application Process: 

Opening a fixed deposit account is relatively easy, and it doesn’t make sense to stand in a queue just to open an FD account. So, while looking for the best fixed deposit plan, prefer a bank with an easy application process. 

The application process includes the total number of forms required, the documents involved, and processing time. Moreover, you should also check if they offer an online application process. The online application process ensures quick processing time and a more straightforward application process from the comfort of your home. 

On a side note, prefer a bank that offers well-established customer support.

Loan against FD: 

Banks also offer a loan against your FD. So, in case of any financial emergency, you can also get a loan against your FD. The loan sanctioned against FD could be up to 90 per cent of the FD amount. Moreover, the repayment tenure for loans against FD is up to the maximum term of the FD. Besides, the banks charge interest of 0.5 to 2 per cent above the FD interest rate. 

So, while choosing the best FD plan, consider the loan’s interest rate against FD.

Other Factors to consider: 

If you want to invest your funds in the best fixed deposit plan, you should know that: 

• Unlike corporates and NBFCs, the FD scheme offered by banks doesn’t have a rating. 
• Besides the abovementioned factors, consider the features like maturity amount, interest after tax, and inflation-adjusted fixed deposit returns. 
• Most financial experts suggest choosing a public-sector bank over a private bank for the safety and returns of funds. 
• Banks have several different fixed deposit schemes, so choose the best option per your requirements. 

Conclusion: 

Fixed deposits are the best option if you want to invest your funds in a safe and reliable scheme with assured returns. However, choosing the best fixed deposit plan requires knowing your financial requirements and ambitions. So, choose the best FD plan as per your financial goals. 

If you fail to get a bank of choice that offers a penalty-free withdrawal of your FD, no worries; Piramal finance is here for you. You can quickly get personal loans from Piramal Finance at a competitive interest rate. Moreover, you can also find various financial blogs here, do read them for better financial advice.