deposits have soared in popularity because of their standing as one of the safest investment options available. With an easy to understand investment process, people from all walks of life tend to put their life’s savings into fixed deposits.

In fact, all banks and NBFCs offer Fixed Deposit (FD) investments with tenures as little as seven days. They protect the principal amount and make life easy with regular interest payouts. But it is wrong to assume that they should be your sole investment option.

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Cumulative and Non-cumulative FDs:

Fixed deposits have low liquidity till the tenure of the deposit ends. They come with a pre-specified return and are immune to market conditions. They are of two kinds — cumulative and non-cumulative. In cumulative fixed deposits, interest rate is compounded every quarter or every year. This is payable at the time of maturity along with the principal. A non-cumulative fixed deposit, on the other hand, pays interest on a quarterly, monthly or annual basis, but, the interest earned every month from non cumulative fixed deposits is taxable. This option is most suited for individuals who need periodic interest payout.

An example can make this clearer. Say you invest Rs 1,00,000 in State Bank of India’s cumulative fixed deposit scheme for one year with 10 per cent interest. SBI will pay an interest of Rs 10,000 and you will get back Rs 1,10,000. If you put the same sum in a non-cumulative scheme which pays interest every quarter, you get Rs 2,500 each quarter. Non-cumulative fixed deposit schemes are more suited for pensioners. They need periodical payment of interest.

Post Retirement Planning:

Fixed deposits should not be the sole option here. One should prepare for post-retirement life early. With increasing life expectancy rates, start planning at least 30 years in advance. Factor in inflation. Get medical insurance for yourself and dependants. Ideally, split your super-annuity investment corpus into two. A major chunk (say 70 per cent) can be fixed deposits. But the remaining should be stocks or equity mutual funds, with broad investment horizon. The interest you earn from fixed deposits will take care of your regular expenditure. The stocks or equity mutual funds will give you decent returns to cover for inflation as time goes.

Customised Fixed Deposits:

Your fixed deposit portfolio should be strong enough to tide through difficult times. To avoid penalty on premature withdrawals of FDs, choose any of these following options.

Flexi Fixed Deposit:

A flexi fixed deposit offers flexibility and convenience to customers. It is traditionally a combination of a fixed deposit and a recurring/savings account. Customers get high Fixed Deposit interest rates and the liquidity offered by saving accounts.

Demand Deposit:

Here, deposited funds can be withdrawn at any time. This is in sharp contrast to a term deposit that cannot be accessed for a predetermined period of time.

Plan meticulously for retirement and save diligently. Do not drain out the principal amount from the bank. But you can always tweak the schemes a bit to make them suit you more. There are quite a few options available in the market today that can make this happen. Keep exploring.

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