If you have decided that a fixed deposit is the way to secure your surplus while ensuring secured earnings, you now need to concentrate on maximizing your returns on the deposit. Here’s how to go about it.
Safety and reliability are the most popular reasons for investing in FDs, and as you know different companies, banks and institutions offer different terms to investors. Do you find yourself attracted to the assured fixed deposit interest rate that NBFCs offer, which are higher than what banks offer? While this is great, there are more ways by which you can maximize the returns from a fixed deposit. Here are some tips to keep in mind.
- Do your Research
As with any investment decision, it is important to shop around to get the best deal. For a fixed deposit, it is important for any investor to maximize the returns on FD. To achieve this, you will need to check which NBFCs are offering the best interest rates. Typically the rate of interest is related to the tenure of the deposit. So based on your investment needs, pick the right combination of interest and tenure.
- Don’t shy Away from Using your Calculator!
Next, you will also need to consider when the interest is paid. Banks and NBFCs calculate interest quarterly, half yearly, annually or at maturity. You should calculate the interest earned between different options to pick one that suits you best. For example, let’s compare two lenders A & B, which offer a 10% interest for a year on a 5-year fixed deposit. However, Bank A computes the interest on a quarterly basis whereas Bank B computes interest annually. In this case, Bank A will get you a better return as the interest is being calculated more frequently. It is important to make a note of these terms to help you to secure the highest return. Whenever in doubt, you can use a FD calculator to calculate the total income from your fixed deposit.
- Check if you Need to Split your FDs?
TDS or Tax Deduction at Source is a tax deduction that deducts 10% of the interest earnings. This deduction applies to interest earnings above Rs.10,000 per year. The calculation for tax deduction from FD earnings is made at each branch of the bank or NBFC. In case your calculation shows the return on FD interest to be more than Rs.10,000 a year, you can split the fixed deposit between two or more branches. Doing this means that you have smaller fixed deposits that will come in handy when you are in urgent need of money. You will need to break only one deposit as opposed to breaking one large deposit and losing interest earnings.
- Reinvest the Interest
Every time you make a fixed deposit you will be given the option of reinvesting the interest on maturity of the investment. Further, on maturity of the fixed deposit you can also request for the fixed deposit to be reinitiated with the same term at the prevailing interest rate. On choosing the interest rate to be reinvested, the value of the subsequent fixed deposit will increase, as the interest will be added to the capital. This will enable you to earn more in the next FD.
You can enjoy a high rate of interest on your Fixed Deposit, with an additional 0.25% interest for senior citizens. With a low deposit amount of just Rs.25,000 and a tenure ranging 12 to 60 months, the fixed deposit options are varied to suit each investor. An easy online application is an added advantage along with high stability ratings.