Rashmi Roddam

It would be fair to say that for most young working professionals today, fixed deposits (or FDs) are investment vehicles which should be considered only after looking at other options like stocks, mutual funds, gold, property, etc. But any financial expert will tell you that when building a portfolio, your money should be wisely split across asset classes based on your current financial standing as well as the financial goals you have set for yourself.

One of the important features of FDs is the liquidity it offers. In case of an emergency, you can easily close the FD and get back your principal amount. Also, FDs are considered to be ?safe? investments.

FDs, also called Term Deposits, are also popular for its fixed rate of return. When we think of FDs, what comes to our minds are fixed deposit in banks ? nationalised, private or co-operative banks.

However, there are also many corporates who accept fixed deposits. Interest rates on FDs for one year (cumulative) currently range from 7.5 per cent to 9 per cent in banks (0.5 per cent extra for senior citizens).

Comparatively, corporates pay higher interest rates which could range from 8.5 per cent to 12 per cent for the same duration. As mentioned earlier, how safe are these FDs? Are bank FDs only the safest form of investment? Let us take a deep dive on various benefits and differences that exists in both bank FDs and corporate FDs.

If you are planning to invest in fixed deposits then keep the following things in mind:

* Spread your fixed deposit investments in smaller amounts across various banks and companies so that in case you need funds during emergency, penalty that you would pay on premature withdrawal will be lower compared to the penalty that you would pay when you discontinue a higher amount of deposit.

* Choose from cumulative (interest withdrawal on maturity) or non-cummulative (monthly, quarterly, halfyearly or annually withdrawal of interest) deposit based on the requirement of interest amount for your disposal.

From my past experience, I have seen people work hard to create corpus for FDs but are not clear on how to use it when the amount matures.

Author is the founder and MD of WealthRays.