Have money to spare? Deposit it

Get your spare funds to work for you, with fixed deposits. However, choose the best interest rates on the same.

From time to time, you might find yourself in a situation where you are flush with funds. Rather than spend the money, you would like to invest it. For this, you might consider parking your funds in a fixed deposit account with your bank.

In simple terms, a fixed deposit account is one which allows you to rest your funds from a duration of time as mutually decided by you and the bank, at a pre-decided rate of interest. The bank or financial institution pays you interest for the amount you have deposited with them, based on the tenure and the amount, at the end of the maturity period. You even have the liberty to withdraw your funds before the maturity of the fixed deposit term, but you must know how much accrued interest you will be paid in this case.

Every bank and financial institution will have different fixed deposit rates so you must choose the one that works for your needs.

Why interest rates matter

The fixed deposits rates will decide the ultimate amount you will get as accrued over the tenure you had deposited the money for. The fixed deposit rates are adjusted such that you will get increasing returns on the amount deposited the longer the tenure of the deposit.

When making a decision to open a fixed deposit account, study the bank or financial institution’s interest rates carefully. The lowest rate is 0.05 per cent for most banks in UAE, and every bank will also have a minimum tenure (normally seven days) and minimum deposit amount.

Check if your bank also charges a penalty interest in case you terminate your fixed deposit before the maturity period is over.

What to look out for

Ask your bank if there are any rewards for extending the maturity date for your fixed deposit. The bank will offer an entire schedule of step-up rates, and you can arrive at the best combination of factors to decide if you want to extend the fixed deposit or not.

Find out from which month the bank or financial institution starts calculating interest on your fixed deposit. Most people think that the interest is calculated from the very first month of deposit – this is not true. Also, get a schedule of the fixed deposits rates’ increase on a monthly basis. Ideally, it should start at about 0.5 per cent and hit a peak of 5 per cent after a few months, with the interest accruing per month.


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