Increase Fixed Deposit Returns With These Easy Tips

• Fixed Deposits (FDs) offer a safe investment avenue with guaranteed returns. 

• When you invest without a payout until maturity, you earn compound interest, allowing your money to grow more.

• By spreading your investment across multiple FDs with different maturities, FD laddering offers liquidity, steady income, and reduced interest rate risk.

• To boost returns, research special offers, select longer tenures, opt for senior citizen FDs(if eligible), and choose cumulative FDs. 

In an ever-evolving financial landscape, building a secure and stable financial future has never been more important. In this regard, Fixed Deposits (FDs) are a time-tested investment avenue that offers both safety and guaranteed returns. 

You can enhance your portfolio more effectively if you follow certain fixed deposit strategies for investment. Learn more about how you can leverage FDs to build a strong foundation for financial security. 

These investment instruments offer an unmatched combination of safety, simplicity and predictable returns. Here’s why FDs are a good option and how you can gain the most from them. 

Here is why a fixed deposit is considered a safe investment in India:

• Protects from Market Fluctuations

Unlike stocks and bonds that provide market-linked performance, FDs offer stability. Your principal investment amount remains safe even in unfavourable market conditions.

• Extends Guaranteed Returns

When you invest in an FD, the bank or financial institution guarantees a fixed interest rate over a specified period, regardless of market fluctuations. This offers stability and predictability, making FDs a low-risk investment.

• Provides Compound Returns

FDs also offer you the compounding benefit, where you earn interest on your initial investment as well as the interest accrued over time. Reinvestment of interest earned ensures that your wealth grows even more.

• Offers Flexible Options

Another key benefit of FDs is their flexibility to align with your financial goals. For consistent income, you can opt for regular interest payouts (monthly or quarterly). For long-term savings toward a major purchase or retirement, a cumulative FD is a great option.

The FD laddering technique involves investing in multiple fixed deposits with different tenures. This approach allows you to maximise your returns along with improving liquidity and reducing interest rate risks. This can also provide a steady income, as different FDs will mature at regular intervals. 

Here is an example for you to understand how this strategy works:

• Consider you wish to invest ₹10 lakh in a fixed deposit.

• Instead of depositing the entire amount in one FD, you can split the amount and invest in different FDs.

• For instance, you can invest ₹2 lakh each in 1-year, 2-year, 3-year, 4-year and 5-year FDs.

By understanding factors that influence FD interest rates and knowing how to take advantage of them, you can secure higher returns. The following are some of the strategies for maximising FD interest, allowing your savings to grow more effectively over time:

• Research Before Investing

Before you invest in an FD, research special bank offers available for different tenures. Select the investment options that may provide the highest returns. 

• Select the Right Tenure

The interest rates on FDs are generally different based on the tenure you choose. Typically, FDs with longer tenures offer higher interest rates. 

• Opt for Senior Citizen FDs

Certain issuers provide marginally higher interest rates, up to 0.50%, to those over 60 years. If you are a senior citizen, you can consider investing in these special FDs to earn higher returns.

• Choose Cumulative FDs

When you invest in an FD, you can either choose regular payouts or reinvest the interest received. By choosing to reinvest the interest through cumulative FDs, you can maximise your returns.

• Hold Till the End

You may get a lower interest rate if you decide to break your FD before its maturity. It’s best to hold on to your investment till the end so that you can earn maximum interest.

While FDs offer a safe and reliable way to grow your savings, it is subject to taxation. Check out how FDs are taxed:

• The interest earned on FD is added to your total income and is fully taxable as per your income tax slab rates.

• Tax Deducted at Source (TDS) applies if your annual interest earnings exceed ₹40,000 (₹50,000 for senior citizens).

• The TDS is 10% if you have furnished your PAN details and 20% if the PAN details are not furnished.

• To enjoy exemption from tax on FD interest, you need to submit Form 15G or 15H to the FD issuer.

1. What is FD laddering and how does it help?

FD laddering is a strategy where you divide your investment into multiple fixed deposits with varying maturities. This offers periodic access to funds as FDs mature at different times and minimises interest rate risk.

2. Can I get higher rates for senior citizens?

Yes, many FD issuers offer higher interest rates on fixed deposits to senior citizens. The incremental rates generally range from 0.25% to 0.50% p.a.

3. How do I avoid TDS on FD interest?

To avoid TDS on FD interest, you can consider the following options:

• Submit Form 15G/15H: If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60) or Form 15H (for senior citizens).

• Choose FDs with Lower Interest: If your FD interest income is under the taxable limit, no TDS will be deducted by the issuer.

• Split Your FDs Across Issuers: By dividing your FD investments across different banks, you can keep the interest income from each FD below the taxable limit.

• Opt for a Tax-saving FD: Certain tax-saving FDs (5-year lock-in) come with tax benefits of up to ₹1.5 lakh under Section 80C.

4. Which banks offer the best FD rates?

You can research FDs from different private and small finance banks and non-banking financial companies (NBFCs). These institutions generally offer higher FD rates.

5. Are corporate FDs safer than bank FDs?

Both corporate FDs and bank FDs are considered safe. However, corporate FDs present an opportunity for higher yields at the cost of increased risk.

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