As a smart investor, you can take proactive steps by investing money in a safe and risk-free deposit that offers guaranteed returns. There are several ways to maximize earnings, but when you approach retirement, you must always look for risk-free investment avenues, that can help in steady growth of retirement savings. Investing in fixed deposits is one of the best investment options for people post-retirement. It offers capital protection along with interest, which is compounded annually.
Therefore, if you are looking to maximise the earning potential of your fixed deposits, then follow the steps given below:
Fixed deposits are offered by banks, NBFCs and companies. Banks and post offices offer moderate interest rate on fixed deposits; whereas company fixed deposits offer a higher rate of interest, due to the risk factor involved.
The rate of interest on company deposits is higher than bank FDs, because interest payment depends on their profits from investments. It is not always beneficial to invest in company FDs as there is a risk factor involved. Therefore, it is important to maintain the safety of your investments by choosing company FDs, issued by companies with high credit ratings (AAA rated Firms). This will cut risk and you can earn higher returns than bank FDs.
There are several credit rating agencies like CRISIL and ICRA that provide an unbiased opinion on the safety of the company deposit. When choosing company FDs, take a look at credit ratings, so that your investment remains in safe hands.
You can opt to reinvest the interest earned on your FD, rather than withdraw the interest amounts received on the fixed deposit. You can directly renew your FD to earn additional interest. The interest income accrued also gets re-invested, which helps maximize returns easily.
You will be able to grow your money and generate higher returns by reinvesting both the principal along with the interest incurred. If you do not require money for immediate expenses, then instead of liquidating the FD, try reinvesting for a few more terms. In this way, you can maximize your returns and also meet financial goals.
You can increase earnings by reducing tax outgo. Try and maintain yearly interest income below Rs 50,000. Until last year the interest income on fixed deposits held at the bank or post office was exempted from TDS up to Rs. 10,000 a year. With the Interim Budget in 2019, the threshold limit has been increased to Rs 40,000 for normal investors and Rs 50,000 for senior citizens for the TDS exemption.
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SEE ALSO: What is meant by Fixed Deposit?
It is always beneficial to opt for multiple FDs and ladder your investments across various tenures. Dividing your investment across FDs ensures liquidity at different points in time. This enables you to have better access to funds and you can break only one deposit in emergency situations, while the other deposits continue to earn interest. This reduces investment risk which is basically the chance of not earning the highest interest on your FDs.
Different maturity dates allow you to benefit from the changing interest rate scenario. If you invest your money at one go, then you may be exposed to low-interest income, if the prevailing rates are low. Spreading your investments across various banks controls the pre-withdrawal penalty, in case of premature withdrawal on FD.
An investment calculator gives an idea on returns from FD. When you know the amount of returns you are about to make, then you can decide on how to split your money and ladder according to your investment goals.
It is also recommended avoiding withdrawing your earnings before maturity, as this may attract a penalty and it may affect your earnings. In case of emergencies, you can always consider taking a loan against FD, so you don’t have to liquidate your savings.
SEE ALSO: Types of Fixed Deposits
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