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6 Best Types of Fixed Deposits to Secure and Maximize Student Savings
As a student, it can be hard to juggle multiple priorities such as focusing on studies and finding ways to save for your future. While the thought of financial stability may seem far away on the very distant horizon, there are small steps you can take right now which will set you on a path to financial freedom. One of these is considering fixed deposits. A sensible choice when it comes to strategic savings. In this comprehensive guide, I’ll break down the different types of fixed deposits so that you have all the information necessary to make an informed decision about your future finances!
Let me begin by sharing some insights into the broader types of fixed deposits.
Cumulative Fixed Deposit: Maximizing Returns Over Time
As per the directives of the Reserve Bank of India, a Cumulative Fixed Deposit operates on the principle of quarterly compounding intervals on term deposits. The interest is calculated and paid based on the bank’s decided rate, considering the deposit period. This type of FD offers a unique advantage, the depositor earns interest on both the principal and interest components. To illustrate, a Cumulative Fixed Deposit known as the Regular Income cum Recurring Deposit can be considered.
Consider this a financial shelter in which your money not only grows gradually but also multiplies in a compounding manner, providing a significant return when the tenure matures. It is a strategic decision for people seeking long-term financial gain.
Non-cumulative Fixed Deposit: Ensuring a Steady Income Stream
On the flip side, the Non-cumulative Fixed Deposit operates on a different principle. Here, interest is not accumulated but disbursed to the depositor at regular intervals. This setup guarantees a passive income for the depositor, providing a steady stream of funds to meet immediate financial needs.
A Non-cumulative Fixed Deposit, available in both Monthly Income and Quarterly Income variants, can be a reliable tap of financial support, delivering regular drips of income. It’s particularly beneficial for students or recent graduates who might need a consistent influx of funds to manage living expenses, repay loans, or invest in further education.
Types of Fixed Deposits
Indian banks offer a variety of fixed deposit options to investors, each with its distinctive features and benefits. Below are some of the most prevalent types of fixed deposits available in India:
- Standard Fixed Deposits – Standard FDs serve as the bedrock of fixed deposit schemes. Tailored for Resident Indians and various entities, these FDs offer tenures ranging from 7 days to 10 years. With preset interest rates higher than regular savings accounts, they provide a steady foundation for conservative investors.
- Tax Saving Fixed Deposit – Designed exclusively for Resident Individuals and Hindu Undivided Families, Tax Saving FDs offer a unique proposition. Allowing a tax deduction of up to Rs. 1.5 lakh under Section 80C, provides a balance between financial growth and tax benefits. However, a lock-in period of 5 years restricts premature withdrawals.
- Flexi Fixed Deposits – Tailored for those seeking a blend of FD stability and savings account flexibility, Flexi FDs offer higher interest rates than regular savings. Investors can enjoy liquidity benefits, withdrawing deposits before maturity when needed.
- Callable and Non-callable Fixed Deposits – While Callable FDs allow premature withdrawals with penalties, non-callable FDs restrict withdrawals until maturity. The latter typically offers higher interest rates, adding an element of stability to the investment.
- Corporate Fixed Deposits – Provided by Housing Finance Companies and NBFCs, Corporate FDs present an avenue for potentially higher returns. However, with increased returns comes increased risk, as these deposits lack insurance coverage from entities like DICGC.
Advantages of Fixed Deposit for Students
Fixed deposits provide a haven for risk-averse investors, ensuring profits without the volatility of market movements. Key benefits include:
- Assured Returns: Fixed interest rates offer predictability and security.
- Tax Benefits: Tax-saving FDs allow deductions under Section 80C, enhancing financial planning.
- Higher Liquidity: Some FDs provide flexibility in premature withdrawals, balancing stability with immediate financial needs.
How to Find the Right Fixed Deposit?
Investing in the right FD requires strategic thinking. Here’s a step-by-step guide:
- Determine Your Goal: Determine your investment objectives – be it long-term savings, short-term income, or tax savings.
- Research Financial Institutions: Compare offerings from different banks, evaluating interest rates and terms.
- Assess Flexibility: Look for FDs with flexible tenure, interest payout options, and premature withdrawal facilities.
- Check Credit Ratings: Ensure the financial institution is creditworthy by checking its ratings from agencies like CRISIL.
- Safety Measures: Verify the regulatory status of the institution, ensuring it adheres to RBI regulations, and opt for insured deposits.
- Professional Guidance: Seek advice from financial advisors to align your investment with your goals and risk tolerance.
Steps to Start a Fixed Deposit in India
Choose the Right Bank or Financial Institution
The first step in initiating a Fixed Deposit is selecting a reliable bank or financial institution. Opt for institutions with a good history, solid credit ratings, and adherence to regulatory guidelines. Renowned choices such as State Bank of India (SBI), ICICI Bank, and HDFC Bank offer diverse FD options.
Understand the Types of Fixed Deposits
As discussed above, before diving in, acquaint yourself with the types of Fixed Deposits available. The diverse options cater to unique needs and goals. Explore standard Fixed Deposits, Tax Saving Fixed Deposits, Flexi Fixed Deposits, and others to align your investment with your financial objectives.
Gather Necessary Documents
To kickstart the process, gather the required documents. Typically, you’ll need:
- Identity Proof: Aadhar Card, Passport, or Driver’s License.
- Address Proof: Utility bills, Rent Agreement, or Passport.
- Passport-sized Photographs.
Choose the Type and Tenure of Fixed Deposit
With a plethora of options, decide on the type of Fixed Deposit that suits your needs. Consider factors such as your investment horizon, liquidity requirements, and risk tolerance. Select a tenure that aligns with your financial goals.
Choose the amount to invest
The minimum deposit required to open a fixed deposit (FD) account varies from bank to bank. It ranges between Rs. 1,000 to Rs. 10,000. For instance, the minimum amount that can be deposited in the State Bank of India is Rs. 1,000. An initial deposit of Rs. 5,000 is required to open an FD in HDFC Bank. However, some banks and NBFCs may have lower minimum deposit criteria. A tax-saving 5-year fixed deposit can be opened with an amount as low as Rs. 100. Please note that these amounts are subject to change, and it’s always a good idea to check with the bank for the most current information.
Estimate the Returns and Understand Fixed Deposit Rates
Most banks provide online Fixed Deposit interest calculators. Use these tools to estimate the returns on your investment based on the chosen type, principal amount, and tenure. It’s crucial to understand the Fixed Deposit rates, as they significantly impact your earnings.
Visit the Bank or Apply Online
Once you’ve made your decision, you can opt for either online or offline application:
- Offline Application:
- Visit the chosen bank branch.
- Collect the Fixed Deposit application form.
- Fill out the form with accurate details.
- Submit the form along with the necessary documents and initial deposit.
- Online Application:
- Visit the bank’s official website.
- Navigate to the Fixed Deposit section.
- Fill out the online application form with the required details.
- Upload the necessary documents.
- Transfer the initial deposit online or as per the bank’s guidelines.
Receive Fixed Deposit Receipt (FDR) and Understand Rates
Upon successful submission, you’ll receive a Fixed Deposit Receipt (FDR). This document outlines the terms of your investment, including the principal amount, interest rate, tenure, and maturity date. Understand the Fixed Deposit rates mentioned in the FDR, as they determine your earnings.
Monitor and Renew (if desired)
Once your Fixed Deposit matures, the bank will credit the maturity amount to your linked account. You can choose to reinvest in another FD or withdraw the funds. Many banks offer auto-renewal options for added convenience.
A Journey Toward Financial Security
Starting a Fixed Deposit in India is a straightforward process that offers financial stability and growth. By understanding the several types of Fixed Deposits, closely monitoring Fixed Deposit rates, and following these simple steps for both online and offline openings, you can embark on a journey towards secure and predictable returns. Remember, the key to successful financial planning lies in informed decisions, strategic investments, and a keen awareness of the prevailing Fixed Deposit rates.
Fixed Deposits represent more than just financial instruments; they are stepping stones toward financial security. By understanding the nuances of various FDs, students and graduates can embark on a journey that safeguards their investments and nurtures their financial well-being.
Fixed Deposits stand out in the complex world of finance because they provide stability, predictability, and growth. Visit the official websites of various banks and consult with financial experts to gain a better understanding of fixed deposit rates and specific offerings. The world of Fixed Deposits awaits, ready to help you build your financial future.
