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Here are three most important tips that will help you choose the best fixed deposit scheme.

Interest rate and tenure

If you are planning to put money in a fixed deposit scheme in a bank, you need to look at two parameters— interest rate and tenure. Interest rate varies for people below the age of 60 and senior citizens and also based on tenure. Currently, interest rate ranges between 3.15% and 9% an annum for tenure ranging from 7 days to 10 years. Usually, mid-sized and cooperative banks offer higher interest rate compared to bigger banks. For instance, RBL Bank Ltd offers 7.15% to 7.25% interest on 1 to 5 years. Meanwhile, HDFC Bank Ltd offers 6% to 6.75% interest for the same tenure.

Convenience

If you are the existing customer of a bank, it usually allows you to open an FD through net banking. Some saving bank accounts provide a sweep-in facility that allows you to convert the amount lying in your savings account into an FD after it hits a certain limit— say Rs25,000. Some banks also allow noncustomers to open an FD online or through branches. Remember, it is not mandatory to open a savings account while you opt for an FD. Most people end up opening FD with the bank where they already have a banking relationship with owing to convenience, despite the lower interest rate.

Early exit cost

In FDs, you have the flexibility to withdraw prematurely—before the end of the promised tenure. However, there is a penalty on it. It can range from 0.5% to 1%. If the interest is 7% and the penalty on premature withdrawal is 0.5%, you will be paid interest at a rate of 6.5%, depending on the duration, if you withdraw your FD before the maturity date. Most banks don’t give any interest, if you have kept FD for less than 7 days. The penalty amount is different for each bank. Since 2015, banks have started to offer FDs without the option of premature withdrawal for a higher minimum amount and interest rate.

Last modified on Wednesday, 25 April 2018

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