Importance Of Choosing The Right FD Interest Rate

Berry Mathew

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Importance Of Choosing The Right FD Interest Rate

Fixed Deposits (FDs) are the one of the most reliable tools when it comes to growing your hard-earned savings. Right from creating an emergency fund to securing your future for retirement, a fixed deposit is a versatile tool that helps you attain all your financial goals easily. By parking your funds in an FD, which is less volatile, you can ensure that your savings will grow at a predetermined rate of interest, so you get assured returns. 

The recent hike in repo rates led to an upward trend in fixed deposit interest rates, resulting in a hike of interest rates by most FD issuers. You can choose to reap the benefits of higher returns on your deposit, by saving your surplus funds in a fixed deposit. This can also contribute towards inculcating the habit of saving in a disciplined manner. 

Grow your savings with a fixed deposit

A fixed deposit is one of the most reliable tools for growing your savings. Here are a few benefits of growing your savings with a fixed deposit:

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  • Safer Investment Avenue

Unlike most other savings tools, the return on your fixed deposits is not affected by market fluctuations. Thus, the returns on your deposit are not market-linked and you stand to gain assured returns. Since your principal amount remains intact and your returns are certain, you can be assured of guaranteed returns at the end of your term. 

In addition to the safety of your deposit amount and returns, you can also check the safety ratings awarded by credit rating agencies like CRISIL and ICRA. Higher safety ratings indicate higher safety of your deposit, so you can be assured that there is no risk of default or delay in interest payouts on your fixed deposit. 

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  • Attractive Interest Rates

There have been four hikes in the repo rates by RBI in this financial year. These consecutive hikes have given momentum to the fixed deposit interest rates, which are now on the rise. Hence, keeping aside your hard earned money in an FD can provide you with higher returns. This implies that they will provide higher and assured returns on your deposits at maturity. Even if you deposit your money for short-term in an FD, you get higher returns on your deposited amount. With higher interest rates, you can accelerate the growth of your savings and beat inflation.

  • Fosters Savings Habit

With a fixed lock-in period for your FDs, it limits the unnecessary fund withdrawals until maturity. It also limits easy access to your money; therefore, helping you stay invested. This helps you maximise the benefits of compounding as it adds to your interest amount, thereby helping you earn more. 

  • Caters to Every Age Group

Fixed deposits are universal in nature, meaning they cater to various kinds of purposes for investors. 

Whether you have a low risk appetite or you are someone who is ready to take risks, FDs are the right choice.

One can start saving funds at an early age, and with the power of compounding, one can multiply their wealth. Higher FD interest rates help senior citizens to earn higher assured returns and save money for their life after retirement. With a low risk appetite, senior citizens can remain stress-free about their accrued savings because FD is one of the safest savings instruments. 

FDs fit all your requirements if you are looking for reliability, security, and comfortable returns and benefits. However, choosing the right FD and financial institution for growing your savings is necessary. Read on to get a clearer view of how choosing the right FD interest rate will help you gain maximum returns. 

Importance of Choosing the Right FD Rate

Fixed Deposit interest rate is the most important factor that affects the growth of your savings. It possesses the power of accelerating or decelerating the growth of your FD. It not only determines the return on your savings but also the amount you will receive at the end of your tenor. 

Let’s look at the table mentioned below to understand this better:

Deposit Amount (Rs.) Tenor (years) Interest Rate (%) Compounding Period  Interest Earned (Rs.) Maturity Amount (Rs.) 
1,00,000 1 5.5 Yearly 5,640 1,05,640
1,00,000 1 6.0 Yearly 6,167 1,06,167
1,00,000 1 6.5 Yearly 6,697 1,06,697
1,00,000 1 7.0 Yearly 7,229 1,07,229

From the above table, you can see that as the interest rate increases, the maturity amount increases. By depositing the same amount at a different rate can help you gain higher returns. Hence, having a clear understanding of interest rates and choosing the right financier for fixed deposit can be a crucial step towards the growth of your savings.

Gauging your risk appetite and other financial requirements or goals will help you choose the right financial institution to grow your savings. This will help you maximise the returns on your savings. However, it is important to ensure that you not only choose the highest FD rates, but also a safe financier who can help you grow your savings easily.