Fixed Deposit accounts are popular among investors and find a place in the investment portfolio. Many Fixed Deposit features make them an appropriate investment choice for those who want to earn returns with minimal risks. The return you earn on the Fixed Deposit is assured and you’ll know how much you’ll earn on maturity. In the current scenario, FD interest rates are hovering between 8.25% to 8.5% depending on the bank and the tenure of the Fixed Deposit.
Here are some tips to maximize your return from FDs
Choose the Best
Fixed Deposit interest rates vary across banks. In fact, NBFCs offer higher FD interest rates than nationalised banks. To make sure that the FD investment you make gives you a high return, choose to invest in the bank which offers the highest rate. While there is not a large difference in the rates offered by different banks, when you invest a large sum of money, even a difference of 0.5% can make a huge difference in the returns you earn.
For example, if bank A offers you 8.5% on a FD of Rs. 100000 and bank B offers 8.75%, you earn Rs. 2500 extra by depositing with Bank B.
Banks often offer FDs under special schemes which offer higher interest rates. You can also compare the interest rates online and then decide where to park your funds.
Long Term FD
Banks offer a higher interest rate when you choose to open an FD for a longer period. Since the deposit is held for a specific time period, Fixed Deposits are also referred to as Term Deposit. A long term FD also safeguards you against interest rate risk. With FD interest rates poised for a fall, your returns will be maximised by investing in a long term Fixed Deposit.
Reinvest the Interest Income
Banks pay out interest at monthly, quarterly, half-yearly and annual rests. Instead of choosing to take the interest credit, you can direct the bank to credit the interest to maturity. In this way the interest credited at rests will be added to the principal and compounding applied, thus increasing your returns.
Split your FDs
The interest income that you earn on your FD is taxable. If the interest income exceeds Rs. 10000 in a financial year, TDS will be deducted by the bank. To save on taxes, and thereby increase the effective return on the Fixed Deposit, it is recommended to split your investment into multiple FD’s such that you will not have to bear the incidence of TDS. You can submit Form 15G/15H for non-deduction of TDS.
Splitting the FDs has another benefit as well. You can avoid the penalty for pre-closing your FD. By splitting, you can ensure liquidity as well as avoid the penalty.
If you’re unable to keep track of the maturity of your investments, it is best to opt for the auto-renewal option in Fixed Deposits. Even if you forget to renew the FD on maturity, the auto renewal option makes sure that the FD is renewed immediately and there is no loss of interest.