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Maximising Returns: How To Choose The Best Fixed Deposit

Looking to maximise returns from your Fixed Deposits? Our blog provides a step-by-step guide to choosing the best FDs. Learn about interest rates, maturity periods, and more. Boost your financial portfolio today!
April 18, 2024

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Investing in FDs has always been a topic for heated discussion among investors. With a plethora of options available, the decision to choose the best FD can often seem overwhelming. But fear not!

In this blog post, we will provide you with some key factors to consider when choosing the best fixed deposit. These factors include interest rates, tenure options, and the reputation of the financial institution offering the FD. By carefully evaluating these factors, you can make an informed decision and maximise your return on investment. At the end, we will also suggest some other investment options that might work better for your financial goals.

At Cube Wealth, we work towards longer-term financial planning and offer a range of investment options to help you achieve your goals. Our Cube Wealth Coaches can guide you in selecting the best investment strategy based on your risk appetite and financial objectives. Don't hesitate to reach out to us for personalised advice and support in making the right investment decisions.

How To Choose The Best FD For You

Choosing the right fixed deposit (FD) can be a daunting task given the plethora of options available. Here are some factors to consider and tips to navigate through your FD choices:

Factors To Consider When Choosing An FD

  • Interest Rates: The rate of interest is one of the most important factors to consider when choosing an FD. Higher interest rates mean higher returns. However, it’s important to note that higher rates might come with higher risks.
  • Tenure: FDs come with a range of tenures - from 7 days to 10 years. The right tenure for you depends on your financial goals and liquidity needs. Generally, longer tenures offer higher interest rates.
  • Credibility of the Financial Institution: The safety of your investment is paramount. Always choose to invest with a reputable bank or NBFC. Look at the institution’s history, customer service, and financial stability.
  • Premature Withdrawal Penalties: Life is unpredictable, and you might need to withdraw your FD before maturity. Also, check the premature withdrawal rules and penalties.
  • Loan Facility: Some banks offer loans against your FD up to 80–90% of your deposit amount. If you think you might need a loan in the future, this could be a deciding factor.

Tips To Choose The Best FD

  • Compare Interest Rates: Don’t just go with your regular bank. Look around and compare the interest rates offered by different banks and NBFCs.
  • Understand the Compounding: Banks can compound interest monthly, quarterly, half-yearly, or annually. The more frequently the interest is compounded, the higher your returns will be.
  • Consider the Economic Outlook: In a rising interest rate scenario, opt for a shorter-term FD. When interest rates are expected to fall, a longer-term FD would be a better choice.

Role Of Credit Rating Agencies

Credit rating agencies play a crucial role in assessing the safety of FDs. These agencies rate FDs based on the financial institution’s ability to repay the principal amount along with the interest on time. Higher ratings indicate a lower risk. Some of the top credit rating agencies in India are CRISIL, ICRA, and CARE. Always check the rating of the FD before investing.

Calculating The Interest Rate For FDs

When choosing The term ‘best FD rates’ refers to the most competitive interest rates offered on FDs. These rates can vary from bank to bank and also depend on the tenure of the deposit. Higher interest rates mean higher returns on your investment. Therefore, when choosing an FD, it’s important to compare the interest rates offered by different banks to ensure you’re getting the best rate.

Interest Calculation In FDs

Interest on FDs is usually compounded quarterly. This means that the interest earned in one quarter is added to the principal for the calculation of interest in the next quarter. The formula used to calculate the maturity amount (the total amount received at the end of the tenure) of an FD is:


  • A is the maturity amount.
  • P is the principal amount (the initial amount deposited).
  • r is the annual interest rate (in decimal).
  • n is the number of times the interest is compounded in a year.
  • t is the time period of the deposit in years.

List Of Some Of The Best FDs

To help you some with your search for the best FDs, here are a few high-yield FD options to consider:

Bank / NBFC Regular FD Rates (p.a.) Senior Citizen’s FD Rates (p.a.)
Bajaj Finance Ltd. (NBFC) Up to 8.60% Up to 8.85%
SBI Bank 3.50-7.10% 4.00-7.60%
ICICI Bank 3.00-7.10% 3.50-7.65%
Axis Bank 3.00-7.20% 3.00-7.85%
HDFC Bank 3.00-7.25% 3.50-7.75%
Bank of Baroda 4.25-7.25% 4.75-7.75%
IDFC Bank 3.50-7.75% 4.00-8.25%
Kotak Mahindra Bank 2.75-7.45% 3.25-8.03%

Interest rates as of Please note that these rates are subject to change, and it’s always a good idea to check the latest rates before making an investment decision.

Are There Any Better Investment Options?

Though FD offers a safe and guaranteed return on investment, there are other investment options that may offer higher returns. It includes mutual funds, stocks, real estate, and bonds. These investment options come with their own risks and the potential for higher returns compared to fixed deposits. It is important to carefully assess your risk tolerance and financial goals before deciding on the best investment option for you.

Read this guide, FD vs. Other Investment Options: Making Your Money Work, to learn more about the pros and cons of each investment option and how they align with your financial goals.

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Start investing with Cube Wealth today and make your money work smarter for you.

FAQs Related To Choosing The Best FD Investments

Sure, let’s delve into each of these topics:

1. What are the benefits of investing in Fixed Deposits?

  • Guaranteed Returns: FDs offer a fixed interest rate, which means the returns are guaranteed and not subject to market fluctuations.
  • Flexibility: You can choose the tenure of your FD according to your financial goals, ranging from 7 days to 10 years.
  • Safety: FDs are considered one of the safest investment options as they are not linked to the market risks.
  • Loan Facility: Many banks offer loans against FDs, which can be up to 90% of the deposit amount.
  • Encourages Saving: Since FDs have a lock-in period, they encourage a disciplined approach to saving.

2. What factors should I consider when choosing a Fixed Deposit?

  • Interest Rate: The rate of interest is one of the most important factors to consider, as it directly impacts your returns.
  • Tenure: Choose a tenure that aligns with your financial goals. Longer tenures usually offer higher interest rates.
  • Credibility of the Financial Institution: Always choose a reputable bank or NBFC to ensure the safety of your investment.
  • Premature Withdrawal Rules: Understand the penalties and rules associated with premature withdrawal of the FD.
  • Customer Service: Good customer service is crucial for resolving any issues that may arise during the tenure of your FD.

3. What is the difference between cumulative and non-cumulative Fixed Deposits?

  • Cumulative FDs: In cumulative FDs, the interest is compounded quarterly or annually and is paid out at the time of maturity along with the principal. These are suitable for those who do not require periodic interest payouts.
  • Non-Cumulative FDs: In non-cumulative FDs, the interest is paid out periodically (monthly, quarterly, half-yearly, or annually), providing a regular income to the depositor. These are suitable for those who need regular income.

4. Are Fixed Deposits taxable?

Yes, the interest earned on FDs is taxable under the Income Tax Act, 1961. If the interest income from FDs exceeds ₹10,000 in a financial year, TDS (Tax Deducted at Source) at the rate of 10% is deducted by the bank. However, if your total income is below the taxable limit, you can submit Form 15G/15H to the bank to avoid TDS.

5. Can I withdraw my Fixed Deposit before maturity?

Yes, you can withdraw your FD before maturity. However, this is known as premature withdrawal and usually attracts a penalty, which could be in the form of a lower interest rate. The terms and conditions of premature withdrawal vary from bank to bank.

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