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Bank Fixed Deposit Vs Post Office Time Deposit: How to choose best FD

The Financial Express logo The Financial Express 04-12-2019 Sunil Dhawan

Best FD scheme: If you are looking to save money in a fixed deposit scheme, there are several investment options to choose from. From bank fixed deposits to post office time deposits, an investor can choose between the two of them or diversify in both of them.

© AP Photo/Channi Anand, File

FD is available for as short as 7 days to tenure as high as 10 years. What you need to be sure about is the tenure or the period of FD scheme and then invest. But, before opening an FD scheme, one needs to be aware of certain factors for a higher interest rate and also the safety of money.

Let us see some important factors while choosing the best fixed deposit scheme: 

FD Interest Rate

The interest rate for short term deposits of 1 month or 1 year may be the same as that on deposits of 5 year or even 10 years. This is because banks fix interest rate based on several factors such as liquidity, demand of funds etc. However, whatever is the rate of interest, most banks provide an additional 0.5 per cent to the senior citizens who are above age 60. If there are family members who are above age 60, it could be better to invest in their name. 

Online FD

Some banks provide the facility of opening online FD. It is not necessary to open a savings account in the same bank as some banks allow investing in FD online without account. Before opening online FD, it is important that you speak to the banker about the minimum and maximum amount, redemption proceeds, documentation etc. 

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Premature exit

Some banks have FDs without the facility of premature exit before the end of the original tenure. In such FDs, the rate of interest is generally higher than regular FD schemes with premature exit option. If you are sure that you will not need funds for the entire tenure, choosing FD scheme without premature exit will give best FD returns. 

Safety of Bank FD

If you are thinking about how safe are bank deposits, then it is important to know about the DICGC scheme.

DICGC or Deposit Insurance and Credit Guarantee Corporation insures investor?s bank deposits up to Rs 1 lakh including principal and interest amount per bank. However, even though the limit is Rs 1 lakh, it is common know-how that irrespective of the amount, the government ensures that depositors money remains safe. 

Company FD

Investing in company fixed deposits come with higher interest rate but the associated risk is also high. Some manufacturing companies and NBFCs offer higher rates but several of them have also defaulted in the past. Do not merely go by the ratings of the company as they may change over time. 

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PO Deposits

The post office (PO) time deposits are available for 1, 2,3 and 5 year period. The rate of interest on PO time deposits is currently higher than many bank FDs. Irrespective of the amount of deposit, the safety in PO time deposits is the highest as they are backed by a government guarantee. 

Small Finance Bank FD Rates

The rate of interest in Small Finance banks is higher than what is offered by front line commercial banks. The Small Finance Bank FD schemes also come under the ambit of DICGC and one may diversify some amount in them too. 

To sum up

The best FD scheme will be the one that gives you the highest interest rate for the tenure that you wish to lock-in the funds for and is safe. But, remember, FDs suit those who want a regular income and preserve capital. The post-inflation rate of interest is low in them and the interest income is entirely taxable without any tax benefits. Choosing the best FD scheme may be easy but you may not be doing the best thing with your money!

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