Fixed deposits are the most traditional form of investment that is still popular among Indian investors. It is an ideal option for risk-averse investors and is one of the safest ways to generate returns from investments. The high rates of interest and flexible tenures ranging from 7 days to 10 days make it an ideal investment option for short term and long term investments. Given below are some of the ways through which you can ensure better returns from your fixed deposits:
The ability to avail banking services online has enabled the customers to explore various options and compare the rates of interest offered by the other banks. With banking services available online, one has the freedom to select any bank or financial institution that offers better rates. Some financial institutions offer higher interest rates for online accounts than their physical branches. For example, if you open an account at Mahindra Finance online, you get an interest rate of 9%, while in case you open a fixed deposit account at one of their branches the interest rate offered is 8.75%. The rates of interest are much lower for nationalised banks like SBI, where a short term fixed deposit would give you an interest rate of 6.80% at best.
Fixed deposit is a one of the most common financial instruments offered by banks, NBFCs and private companies. Banks and post offices offer moderate interest rates whereas the company fixed deposits will fetch you a higher rate of interest due to the risk factor involved in it.
The rate of interest on company deposits is higher due to the fact that their interest payment depends on their profits from investments. It is advisable that you look for company deposits that are AAA rated, so as to avoid the risk factor. While SBI offers you a maximum of 7.5 %, a fixed deposit at Bajaj Finserv can offer you an interest rate of as much as 8.75%, while in case of Mahindra Finance it could go as high as 9%.
SEE ALSO: Investing in Fixed Deposits
Try and apply for cumulative fixed deposits, as they tend to compound the interest income. Cumulative fixed deposits are a kind of investment option where the interest is compounded every quarter or year and is paid at the time of maturity. Cumulative FDs help you build a corpus by reinvesting the interest along with the principal amount. Reinvestment of interest amount allows the principal amount to grow.
Bank FDs are cumulative as they compound interest every quarter whereas the company FDs are mostly non-cumulative and the accrued interest does not get compounded.
Some companies like KTDFC compound interest every month, so the yields are very high in these kinds of FDs. However, before investing in any bank or NBFC look for other aspects like liquidity, safety, tenure, etc.
Generally, fixed deposits have a specified lock-in period where the investor cannot withdraw the deposited amount before the maturity period. In case of an emergency where the investor wants to break the FD, then he has to pay a penalty for premature withdrawal. Premature withdrawal is not a good option and one must consider it only in times of grave emergency. If you withdraw the FD before maturity then the bank will decide the penalty amount which is generally 1% to 2% of the interest amount.
Remember not to put a big amount in one single FD. This can lead to problems in case you need money for an emergency as you’ll have to close the entire FD. It is always advantageous to split your money and invest it in multiple FDs with different tenures rather than inventing the entire sum into one deposit. This will help you to withdraw any one of your FD in case of emergency instead of breaking the entire deposit. Spreading your investment controls the penalty you have to pay in case you prematurely withdraw your FD.
SEE ALSO: Know Fixed Deposits
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Banks and other lending institutes offer better FD interest rate for senior citizens. Generally, senior citizens are given better interest rates than normal depositors. Usually, banks and financial institutions provide 0.50% more than the bank FD rates for regular individuals. If your parents are senior citizens then you can think of investing some of your money in their names. This will not only fetch you a special interest rate but will also save you from tax liabilities. However if they are paying taxes and are in the high bracket, refrain from doing so.
To avoid tax liability you can invest in a tax saver FD. Tax saving FD will enable you to save on taxes and give you a better yield. In tax saver FD, the principal amount that you wish to invest is exempted from taxation. Under these fixed deposits your money is safe and is locked in for a time period of 5 years. Consider your financial standing and your family needs before investing in tax saving fixed deposits.
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