Types of Fixed Deposit Best FD Rates in India in 2022 and Reasons to Invest

A fixed deposit is known to offer steady returns with nearly no risk and no need to monitor your investment. These features make it a favourite among investors in India, whether the aim is wealth creation or to meet financial responsibilities, such as a child’s higher education.

 While your investment in a fixed deposit compounds at a predetermined interest rate throughout the tenor, there is another aspect to understanding the FD interest rate. Typically, your FD investment earns simple, discounted, or compound interest. Here’s what this means.

 FD interest rate

•  Compound interest on an FD

Here the interest earned every quarter is added to the principal and interest is calculated on this increased sum in the next quarter. To understand this further, assume that you invest ₹30,000 for 3 years in an FD with 8.95% interest payable at maturity. At the end of 3 years, you’ll earn ₹39,124. The extra ₹9,124 you earn is the compounded interest, owing to the compounding process that takes place every quarter.

•  Simple interest on an FD

Simple interest is calculated without adding the interest every quarter to the initial investment. In the same example as above, investing ₹30,000 at 8.95% simple interest will get you ₹38,055 in 3 years. Sometimes, issuers calculate earnings on your FD using simple interest for the first year.

• Discounted interest on an FD

You earn interest at a discounted rate if you choose a payout frequency that’s shorter than your issuer’s compounding frequency. For instance, if you choose to receive your earnings not at maturity but monthly, you will earn a discounted interest.

Once you know how issuers calculate interest on your fixed deposit, invest wisely to earn optimal returns. At this juncture, you should select the right type of FD.

Types of fixed deposits

•  Bank FD

This fixed deposit scheme is issued by a bank. The FD interest rate varies across banks, but these FDs are a very safe way to grow your corpus away from the volatility of market forces. 

•  Corporate FDs

Corporate or company FDs are offered by financial corporations, such as housing finance companies, and NBFCs. Company FDs are known to offer better FD interest rates. 

However, it is vital that you take into consideration the ratings of agencies like CRISIL, ICRA, and others before investing in one, as they are an important indicator of its safety. 

• Post Office FD

These are FDs that are offered by the India Post and are part of Post Office Saving Schemes. They are also called Post Office Time Deposits and are backed by the Government of India, so that your returns are truly guaranteed. Their interest rates may not be as high as compared to the others, but they offer maximum safety. 

Benefits of investing in a fixed deposit

•  Offers principal protection

Fixed deposits are known to carry zero to low risk as the interest rates are not linked to the market and remain unaffected by fluctuations. So, your initial investment stays safe from loss. Thus, FDs are a great way to balance a risky investment portfolio.

•   Generates fixed returns

Since the fixed deposit interest rates remain unchanged throughout the tenor, your returns are assured. This way, you can calculate what your earnings will be even before you invest. This allows you to plan for the future with ease.

•  Allows you to enjoy compounding of money

Depending on the compounding frequency, interest is added to your principal every time interest is calculated. To this effect, every time the interest is calculated, it is on an increased principal amount. Thus, your savings grow manifold till maturity.

•     Offers liquidity to achieve your goals

Not only can you book FDs to mature at the time when you need funds for your objectives, you can also borrow a loan against your FD. You also have the option of prematurely withdrawing your FD. All this makes it easy for you to get funds when you need them.

 Make sure you compare various issuers to find the best FD interest rates and other features. To get a chance to compare stellar FD rates side by side and invest with ease online, try the Bajaj Markets App on the Play/App Store. A trusted digital platform, it gives you quick online access to a variety of financial and lifestyle products. Download it today and start your investment journey for a financially secure future.