Fixed deposits (FD) have once again become an attractive investment avenue among investors looking for fixed returns. This is due to the volatility of the stock market and falling inflation. FDs are an ideal investment option for people of all ages and backgrounds, since they are easy to avail and give you guaranteed returns.
NBFCs now offers FDs guaranteed to help you grow your savings, while also protecting your principal amount. These FDs come with attractive FD interest rates, along with various other features and benefits like choice of tenor, or the frequency of your interest payouts, etc. The tenors you can choose from lie between 12 to 60 months, and senior citizens can get higher FD interest rates over and above the existing interest rates.
Additionally, you can now earn high returns through your fixed deposits. In fact, there are several steps you can take to do so, including:
- Research FD interest rates online
Before choosing your FD scheme, it is important to properly research your options. Different FDs may have different interest rates and thus, provide different returns. You can use an FD calculator to know what your returns will be on your principal amount and check if they meet your requirements.
Additionally, FDs are offered by both banks and financial institutions, and it is important to choose between these carefully. Banks may be a safer option, but financial institutions generally offer higher FD interest rates and returns.
- Check how the FD interest rate is calculated
FD interest rates are a basic factor to consider before choosing your FD, and it is very important to know how the FD interest rates are calculated. Often, the rates are calculated either quarterly (4 times a year), half yearly (2 time a year), or annually (once a year). Remember, the higher the frequency of interest calculation in a year, the greater your final returns will be.
- Save on TDS to earn higher net returns
A TDS (tax deducted at source) of 10% is charged on FD interest returns more than Rs.10,000, except for FDs by senior citizens for which the limit has been raised to Rs.50,000 in the Budget 2018. To avoid TDS charges, you can split your FD deposits, by opening multiple FDs in various financial institutions, or even different branches of the same institution.
Another advantage of splitting the FD amounts between different FDs is that you need break only one in case of an emergency. You can save the rest and avoid losing too much of your returns.
- Reinvest your interest income
With an FD you can either withdraw your interest income or reinvest it. If you withdraw, the returns will be credited to your savings account. However, if you reinvest it, your interest rates will be more than the previous year. For example, suppose you have invested Rs.50,000 in an FD for five years, with interest rate 8.40%, your maturity amount at the end of 5 years would be Rs.73,807, with the interest component being Rs.23,807.
However, if you were to withdraw every year, you would get an interest of Rs.3,800 each year, leading to Rs.19,000 at the end of 5 years. That’s a difference of Rs.4,807 in the total returns at the end of five years.
Another option you have is to reinvest the interest you get into an equity-linked mutual fund through an SIP. This way you can reinvest the principal amount into another FD, generating returns there, and utilize the interest you receive – in an SIP. The total returns on FD plus SIP is much greater than just an FD. Moreover, doing so is a great way to diversify your portfolio, and earn higher return without compromising on the safety offered by FDs.
- Use the overdraft facility to avoid breaking your FDs during emergencies
If you have a good relationship with your bank or financial institution, they may offer you an overdraft facility that you can use during emergencies, instead of breaking your FD. This way the interest on your FD keeps compounding, which allows you to improve your net worth in the long term.