Precautions

1. Company fixed deposits
Company fixed deposits are not considered as safe as fixed deposits from leading banks and financial institutions regulated by the RBI. So, if a company runs into losses or goes bankrupt the money invested into its fixed deposit can be lost. To lure investors, such companies offer a fixed deposit interest rate which is much higher than those offered by banks. Before investing in any company fixed deposit it is advised to check the credentials of the company.

2. Interest rate compounding period
The interest rates offered on fixed deposit vary greatly with banks and tenures. Whether the interest rate is compounded quarterly or monthly will determine how much a person earns from his fixed deposit. A fixed deposit with interest rate compounded monthly will earn more than one which is compounded quarterly. It is therefore advised to shop around for the right fixed deposit scheme.

3. Premature ending of fixed deposits
Banks will impose a penalty if you break your fixed deposit before the maturity period. Make sure you get the facts right about this thing. How the bank calculates this penalty and what all charges will it levy when you break a fixed deposit should be noted carefully.