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Should You Open FD Accounts At New Banks?

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July 12, 2017 in Economics


A Fixed Deposit is a safe method of putting away a certain fixed sum of money for a set period of time for the winter days of life. It is also one of the less risky ways of saving money for an interest rate. Here, the investor is assured a set amount, which is the total of the principal invested and the interest earned. All banks offer FDs but the interest rates offered varies depending on the type of the bank.

Off late, after demonetization, the interest rates offered by old and established banks have come down. Most banks are offering unattractive interest rates that are not more than 6 to 7%. Is it wise to put your hard-earned money in a place where you will hardly earn anything? Well, firstly, no investor will have the motivation to save money if the interest rate offered is not good enough. Apart from this, any wise investor will always want to multiply his/money faster and not park in in a financial ‘dead space’ or ‘graveyard’.

There are many newly-established banks that offer very attractive and high rates of interest on FD. Some of these banks offer interest rates ranging from 9 to 10%, a huge incline from what is usually offered at older banks.

Should an investor then choose to invest in FDs in these smaller banks or stick to old ones?
Well, the answer is not so easy. There are many factors to be considered before putting your money into a new bank. The following are the factors to be considered before opening an FD account in a new bank:
Trustworthiness: Do not be blinded just by a high numeric value, which means, a high interest rate. Do your research about the bank or financial institution where you are about to open an FD account. Ask those questions, do a background verification and check how trusted they are before delving into it.
Customer service: Sometimes, it important to have a good customer support team to help resolve queries, answer questions and offer help in times of emergency. What if you want to immediately close your FD account due to some unforeseen financial constraints? Will the particular bank in question allow you to do the same without any hassles? Will a customer support team help you through this process? These are some of the questions that you need to answer.
Genuinity: There are many fraudsters in the market. Financial scams have happened in the past. So is it wise to invest money in an unknown institution. It is important to check the authenticity and originality of the financial institution before being blinded by the high interest rates.
Reviews from other account holders: Try to speak to other FD holders to get an idea about how things work. Find out if there are positive or negative reviews about the concerned financial product.

It’s All About Finding A Balance
It is said that to make good financial decisions one must always strike the right balance between safety and risk. Being too over cautious will arrest growth and this will not lead to any profitable outcomes. On the other hand, being too over ambitious can lead to financial crisis and one may lose what one already has. So what is the right thing to do? As a very old saying goes, when it comes to financial investments, do not put all eggs in one basket. Taking in percentage terms, choose riskier investments for only 25%, while take moderate risks for another 25%. The rest of the 50% should be kept for savings that do not comes with any like of risk.

This same principle can be applied when choosing an FD too. If it falls under the 25% bracket, go ahead and take the risk. It is okay as long as you are not putting everything that you have into a single FD. So, choose wisely and earn abundantly. Also, when compared to other types of investments, FDs are relatively a safer option. So there no much scope for loss like in mutual funds or stocks.
Another option is to purchase a cover option for the FD amount so that it offers protection to your money in case of any unfortunate event like the liquidation of the bank. Many insurance and credit guarantee agencies offer a protection of upto Rs.1 lakh and these institutions are often backed by the Reserve Bank of India. It is recommended that you insure your FD to cover the risk that may arise.

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