When it comes to small savings schemes, there are several post office schemes, recurring deposits and the like. However, fixed deposits make for the best investment options by all means. The fixed deposit interest rates are anyway higher than savings bank deposit rates and you can even get higher interest rates on corporate FDs.
There is always a debate as to investing in debt funds for higher returns in comparison to Fixed Deposits. However, debt funds bear market risks which is not the case for a fixed deposit. An FD is the safest and best way to grow your money without any headaches. You should compare lenders and try to go for the highest interest rate on FD if possible. Many people make the mistake of prematurely withdrawing their fixed deposit which leads to losses. You should always look to lower the costs involved in unplanned closure of fixed deposits. Many a time, when people require funds, they are more inclined towards breaking their fixed deposits.
This leads to losing interest rates and penalties to the tune of 1% for prematurely withdrawing the FD. This becomes a big figure when the total costs are worked out. Most lenders use this formula to work out the interest rates in case of prematurely closing a Fixed Deposit-Interest Rate for Premature FD Withdrawal = Interest Rate that applies for the actual FD period as per the interest rates while investing – 1%
The penalty is charged for all FDs based on the formula above, even in case of FDs that have interest paid out to the customer periodically. In case lenders have already paid the interest to the investor, the penalty is worked out during redemption and the final payout is lowered accordingly. The penalty can be avoided since some lenders offer premature withdrawals minus any penalties. However, there are a lower number of financial institutions offering this feature.
In fact, if you invest in a Tax-Saver FD, you cannot withdraw the money prematurely till the duration expires. When you invest in a fixed deposit, check the penalty for premature withdrawal and interest rates so that you do not lose out on money. If you have already completed the initial tenor of the FD and do not technically need the money for any major purchases or expenses, it will always be a good idea to renew FD since this will help you keep earning interest income on your investment and you will be able to grow your wealth faster. It is always a good idea to withdraw your FD when it matures.