What is an age-old way of saving or investing do you think? Let's step two decades back and take a look at it, shall we? What are the thoughts that pop through your head? Does one of those thoughts hum - fixed deposit? Of course, it does, doesn't it? Because, as far as we all know - fixed deposits have been a part of us more than we could ever imagine. From grandparents, parents, and now to us - we all look forward to investing in this path. Why? Well - there are a lot of reasons for that.
Why Does Everyone Want to Invest in a Fixed Deposit?
(Now, this isn't a bank trying to advertise to start investing in fixed deposits, so they could possibly lend it out - this is different.) There are quite a lot of reasons why people choose to start investing in fixed deposits, and some of the most important factors are that
- They are safe
- They are secure
- You can get a loan against it
- You would not have to worry about market movements
- You can easily start investing as lower or higher as you want
- And more.
While this list could possibly go one, here are some important elements that you would have to consider before you even start investing in a fixed deposit.
Choosing the Best Fixed Deposit for Yourself - Tips and Tricks
1) Choose the Perfect Tenure for Yourself
Now, the best thing about investing in a fixed deposit is that you would have multiple choices. Fixed deposits, when it comes to term periods, are mostly of three types, and they are:
- Short-Term Fixed Deposits - This is when you will have to be invested in the fund for a period of 7 days within one year. These particulars can also change from one bank to another for fixed deposits. Some institutions, in particular, will not give you a seven-day investment offer.
- Medium-Term Fixed Deposits - This is when you would have to be invested from a period of a year to a minimum of 5 years. Again, these particulars could vary from one bank to another easily. Some institutions could set the range for mid-term investments to a period of 3 years.
- Long-Term Fixed Deposits - This is when you would have to be invested from a period of 5 years to a tenure of 10 years. This would mean that you will stay invested until ten years as a whole. But, in the case of the post office of India, the post office only offers you a time period of a maximum of 5 years. Here the short, mid, or long-term values would change.
2) Make Sure the Before Maturity Break Has a Low Rate
No one gets to predict the future beforehand, and every investment that you make could face some stakes down the road. The same would apply when it comes to investments in fixed deposits too.
As you know, fixed deposits have a lock-in period. It is in this lock-in period that you would earn interest, and if you break it off in between - the bank is going to charge you. It is compulsory unless for emergency reasons, to be invested in the deposit for the said period. You may be wondering why it is like this. Here is an explanation that will let you understand better why it is like this.
When you invest in a fixed deposit, you would be investing in the bank or the institution, and they give you a certain amount of returns over it. Once the investment has been completed, which means you have already deposited your money into the bank - your money would be used to lend out by the bank. The bank will lend your money in the form of loans and more for a certain rate of interest that is higher than the interest rate that is offered to you. So, when you want to break off the deposit before the said tenure, it makes it an obligation for the bank to give you the money at a loss.
So, when you choose a fixed deposit, make sure you choose it based on the lowest rates of interest charged to you, even when you break off the fund for emergency purposes.
3) Know you Have a Good Interest Rate
The rate of interest that is offered to you by the bank for the fixed deposit is important. Just like how the rate of interest on your loans and debts needs to be low, the rate of interest on your fixed deposit options needs to be high. Only when you do have a high rate of interest would it be better for you to move forward with the deposit. This is a very primary and obvious reason to choose the fixed deposit.
4) Ensure the Process is Simple
The fixed deposit procedure cannot be a tedious task. This is inclusive of the application procedure, the management, the overviews, and the deposits. Only when you get to see your deposit and how it's often working would you know its growth.
5) Know the Bank/Institution - Trust the Bank/Institution
This, though the last point, is one of the most important points that you would have to consider when you start investing in a fixed deposit. It plays a key role since it involves you investing your hard-earned money in bulk towards a deposit that is way in the future.
Investments alone are a choice - a good one for your financial front. But, again, when you start considering the branches of investments - choosing to invest in fixed deposits again becomes a choice. This, too, although a long-term one, is a good choice you can make. Fixed deposits can bring you profits while you do not worry about any market-related risks. Moreover, the main task comes with choosing the right kind of fixed deposit for you. Once that challenge has been accepted, you can easily move forward to a greater financial future.