Nowadays, interest rates in the debt market are rising and perhaps near to its peak. It is time for investors to lock their money at a higher interest rate. Many banks and NBFCs now offer higher interest rates like never before. While banks are the traditional options due to safety perception, the interest rates offered by banks are much lower than that offered by NBFCs. However, many NBFCs are under the scanner due to liquidity and default issues in the recent past. Hence, the investor is in a dilemma regarding the correct choice of investment. If you want to earn a higher interest on fixed deposit without worrying about the credit quality of FD, read on the following paragraphs to know more.
Criteria to Choose FD
When you invest in FD, there are three criteria in your mind to evaluate your investment options: First, the safety of your hard earned money. Second, the assured rate of return and third, a higher rate of interest. There is a widespread perception that investment in the fixed deposit is 100% safe. However, it is not a fact. The safety of FD depends on the financial strength of the institute that offers FD.
In the recent past, investors have burnt their fingers by investing in some NBFCs. Hence, many investors are forced to park their money in the bank, even at a lower interest rate. In such a scenario, there are independent credit rating agencies like ICRA and CRISIL that can come to the rescue of investors. They conduct rigorous audit through their financial expertise, knowledge,and access to vital information. Based on the audit result, they rate the FD on the scale of AAA to D. As a risk-averse investor, you can insist on the AAA rating of FD for your investment. For example, FDs offered by reputed NBFCs are rated AAA by both the above rating agencies. Apart from rating, investors should check past ten years’ repayment history to ensure the credibility and reliability of NBFC.
FD duration and interest rate
In most of the cases, you can earn a higher interest rate if you select the maximum available duration. In special cases, the NBFCs come with special duration FD, that can fetch a higher interest rate.
Cumulative Vs. Non-Cumulative FD
The cumulative FDs offer a slightly higher interest rate as compared to non-cumulative FD. Under cumulative FD, your interest amount is added back to the principal amount every three months. Hence, apart from the interest rate, you can also command the power of compounding for your investment in cumulative type FD. Over the long period, you can create sizable corpus by allowing your money to grow exponentially. In case you need regular income every month, you can select non-cumulative FD. Here interest rate will be slightly lesser, but you can meet your monthly requirement from the interest income.
Senior Citizen FD
The interest rate for senior citizen FD is higher than the regular Fixed Deposit. If any of your family members is a senior citizen, you can avail of this benefit. You can consult your tax adviser for tax-related matters while you invest in senior citizen FD.
FD calculator is a handy tool for investors to know the interest amount precisely and instantly. You can enter the details like principal amount, duration, interest rate, and cumulative option to know the exact interest amount’s earnings for your investment.
The interest rate on fixed deposit
As like any other bank or financial institute, the interest rate of Term Depsoit changes according to the market trend. However, you will get a higher interest rate than bank FDs in most of the cases. Because of the AAA rating, the FD enjoys ‘bank-like’ safety for your investment. At present, you can earn the interest rate as high as 9.1% by booking your FD. The market experts believe that such interest rates are at a peak with little possibility to rise further and downward trend may start anytime soon. Hence, you can consider locking your investment at the highest possible interest rate for the next five years.
Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.