Fixed deposits are considered as one the safest ways of investment, offering a higher rate of interest than a conventional savings bank account. A fixed deposit is a type of investment in which the funds are deposited for a fixed tenure and the profit earned on the funds is added to the principal amount at the end of the maturity period.
There are numerous banks in the UAE that offer fixed deposit schemes promising a higher profit rate along with the safety and security of the funds. However, with so many options, the customers find themselves in a dilemma in choosing the best fixed deposit account. Although most banks offer a reasonable interest rate, it’s important to understand all the features of the fixed deposit before making an investment. Here are five points to consider before investing in a high-interest fixed deposit.
Apart from offering higher returns, the fixed deposits also provide safety and security to your hard-earned money, thereby making it a popular choice for investment. However, to maximise your gains and avoid any uninvited penalties, you must consider the following points before investing in a high interest fixed deposit.
- Minimum Deposit – Most banks in the UAE accept a minimum deposit of AED 10,000 or its equivalent in USD in their FD schemes. While there are some banks that accept a minimum deposit lesser or greater than 10,000 AED, choose a bank that offers a minimum deposit according to your financial plans.
- Higher Rate of Interests – One of the very fundamental yet important points to consider is that the bank you are choosing for your fixed deposit offers you a competitive interest rate or not. Since the sole purpose of your investment is to gain maximum profit, research various banks and their interest rates offered on the fixed deposit before selecting one.
- Flexibility in Tenure of Investment – As it is known that fixed deposits are locked for a specific tenure, you must check whether the bank offering you the fixed deposits has a tenure plan according to your need or not. The fixed deposit accounts in UAE vary from a period of 7 days to up to 10 years. However, it depends from bank to bank whether they provide freedom to choose the tenure or not. It is advisable to choose a bank that offers a flexible tenure of investment that suits your financial planning.
- Premature Withdrawals – Fixed deposits accounts are locked until the maturity period and any premature withdrawal can invite a penalty on the invested funds. Therefore, it’s important to choose a fixed deposit, where the bank charges very low or nil premature withdrawal charges. Certain banks charge up to 2% on the profits gained; therefore, it’s advisable to select a bank with low charges so that you can rest assured that your funds are accessible even at the time of emergencies.
- Option of Reinvesting Deposits – A higher profit is earned where the deposited funds are reinvested for the next tenure. Therefore, it’s necessary to check whether the bank you are investing in provides an option of reinvesting the funds or not. Some banks offer step up savings or steady savings deposits that offer auto renewal of funds for the next tenure and thus increasing the profit earned on the investment as time progresses. There are different types of fixed deposits that reinvest your deposits, and it becomes important to consider them as per your financial planning.
- Financing and Other Banking Services – Banks in the UAE also offer loans and financing services against your fixed deposits. Do thorough research across all the banks that provide additional services on your deposit. This gives you the freedom to access the funds anywhere and anytime. Multiple banks also offer credit cards with a limit equal to the invested amount, so consider a bank that offers its services according to your banking needs.
In addition, an individual should also research the credibility of the financial institution, liquid capitals, etc. that it has so that you don’t have to worry about your investment and can redeem it with ease whenever you require it.
It will be an additional benefit if you know exactly how to maximise your returns on the fixed deposit. By implementing a few specific measures, you can easily augment the profits you receive. But in doing so you need to be clear about what type of fixed deposit you want and what are your investment goals? Given below are some tips to maximise your profits in a fixed deposit account.
- Never withdraw funds from your fixed deposits before the maturity period. This will incur some fine, and in certain cases, you will end up getting no or negative returns. Therefore, it’s always advisable to select the tenure of your deposits according to your financial planning so that you don’t have to withdraw funds prematurely.
- Choose a bank that offers a healthy profit rate on your deposits. Spending some time in market research can make you really confident in choosing the best fixed deposit plan that offers a higher return according to your investment plan.
- Try making an investment for a longer duration; this will not only ensure higher profits but will also give you additional benefits of enjoying the banking services against the fixed deposit.
- Select a fixed deposit that has the option of reinvesting your funds. An auto renewal option in your fixed deposit will fetch extra returns and also save your time from doing the formalities of depositing the funds again in a new scheme. Reinvesting the funds gives compounding benefits over the long run.
- Choosing a bank that gives you better banking services like loans and finances can also be very useful. In such cases, you can invest and spend the amount (in the form of loans) at the same time, and hence, you will not have to worry if a financial emergency arises.
Fixed deposit accounts have minimal risk of investment. Therefore, it’s a very useful financial tool for individuals looking for secure investments. Considering the above-mentioned points, the investors can enjoy higher risk-free returns on their hard-earned money.