How to Invest in Fixed Deposit(FD)

Are you among those individuals who think investing in a fixed deposit is a safer and guaranteed way to generate income? If yes, then you are not wrong!

This traditional investment option is popular for generating steady but assured returns. In fact, financial experts deem fixed deposits suitable for risk-averse individuals. It also comes in handy for building an emergency corpus or even a retirement fund.

Usually, you find several articles highlighting the features, benefits and drawbacks of investing in fixed deposits on the internet. However, in this particular one, we will try to cover the aspect of – how to invest in FDs and what you should consider before doing so.

On that note, read on to find more!

Steps to Invest in Fixed Deposit

Before we proceed to find out the steps involved in investing in an FD, you must understand that a fixed deposit serves as an ideal avenue to park surplus money. In fact, it is an ideal option to preserve capital at hand. Here’s how you can start investing in FDs.

Step 1 – Check and Compare FD Rates

You must note that the rate of interest offered on FDs tends to vary from one financial institution to another. For instance, when compared to commercial banks, NBFCs and small finance banks may extend a higher rate of interest. Further, senior citizens are entitled to receive additional interest on their investment.

This table below offers a fair idea of the difference between the rates extended to a regular depositor and senior citizen for a tenure of 60 months –

So, to generate higher earnings look for a financial institution that offers a high FD rate. However, don’t forget to weigh in other vital factors and terms of service before investing in any FD scheme.

Step 2 – Pick Suitable Deposit Tenure

Usually, an FD scheme comes with a tenure ranging from 7 days to 10 years.

Based on your requirement, you should proceed to select a suitable deposit tenure. Typically, financial experts suggest laddering FD across different tenures to spread out interest rate – related risks and also to facilitate liquidity.

In case you plan on parking your money into an FD scheme for a significant period, consider investing in a 5-year tax-saving FD scheme. Typically, such a scheme helps to save tax under Section 80C of the ITA.

Step 3 – Choose a Frequency of Interest Pay-outs

Once you have decided the FD tenure, proceed to select the frequency at which you would like to receive interest pay-outs. Generally, you have the option to choose from any of these following –

• Monthly
• Quarterly
• Half-yearly
• Annually

If you are not looking for immediate earnings, you may also consider choosing the reinvestment FD mode.

Such a facility will allow you to reinvest your earnings after being compounded quarterly and will, in turn, be paid out on maturing with the invested principal amount. So, choose a pay-out frequency based on your end goal.

To add to that, you can try Groww FD Calculator for computing your returns on FD. It is a user-friendly and super-easy calculator that can assist you to estimate what returns you might receive when you invest a sum in a fixed deposit.

All you need to do is fill in the total investment, rate of interest, and time period in the given fields, and voila, you will get the amount of return calculated in no time!

Step 4 – Select a Mode of Deposit

Lastly, determine which mode of deposit is most suitable for you.

Most financial institutions allow FD holders to make their deposit via internet banking or by simply visiting their nearest branch.

Once you are clear about these, you can proceed to fill out an FD application form and subsequently invest in a scheme.

Regardless, make it a point to become familiar with a few vital aspects to streamline investments in such a scheme.