Should you consider the credibility of the bank before opening an FD?

Fixed Deposits are often considered a popular choice when looking for a safe investment option for your hard-earned funds. Almost all banks in India offer them. FDs are also the oldest forms of investment instruments. This financial instrument lets you deposit a particular sum for a fixed period with a bank. The sum you invest earns interest at a pre-determined rate that is set when you open the account.

When the FD tenure ends, you receive the sum you invested and the compound interest. You can also receive the interest you earn annually, monthly, or half-yearly, based on your preferences. When selecting the best Fixed Deposit, consider various factors carefully. One of these is the credibility of the bank. Consider the various aspects you should check when opening an FD.

Understanding the credibility of the bank

Determining its credibility before you entrust your funds to any bank and open an FD with them. Choosing a reliable bank ensures the safety of your principal amount and reduces the risk of default. Hence, look for well-established banks with a solid track record. Choose one that has a track record of stability and dependability.

You can also check the credit ratings assigned by independent agencies. This ensures the bank is financially stable and capable of fulfilling its obligations.

Other factors to check when opening an FD

Apart from the credibility of the bank, consider the following other factors when choosing an FD:

• Interest rates

Interest rates are the principal factor affecting the returns of your FD. These rates vary across banks. Hence, determine the FD interest rates offered by various banks. If possible, select an FD with the highest interest rate. However, be aware of offers that seem too good to be true. This is because they may come with hidden terms and conditions.

• Tax implications

Know about the tax treatment of the interest from an FD. The interest you earn on this Term Deposit is typically taxable according to your income slab.

• Tenure options

FDs come with varied tenure options. For example, your bank may offer tenures ranging from seven days to 10 years. It is best to select a tenure that matches your liquidity requirements and financial goals. When you opt for long-term FDs, they may offer higher interest rates. On the other hand, short-term deposits might provide more flexibility and let you access your money sooner.

• Penalty for premature withdrawals

Before finalising your FD, review the terms and conditions related to premature withdrawals carefully. Select an FD that offers reasonable terms if you need to access your funds before maturity.

Conclusion

As evident, determining the credibility of the bank is essential when opening an FD. Similarly, check other aspects, like tenure options, interest rates, etc., when choosing a scheme.