If you are a potential investor, remember that fixed deposits are one of the most safe and secure investment options in the current era. Not at all affected by market fluctuations, FD interest rates make FDs quite a lucrative investment for everyone.
Around a month back, when I joined my new job here in Gurugram, Haryana, I was interested in investments in order to accumulate wealth in the long term. This was when one of my friends told me about Fixed Deposits.
What is a fixed deposit?
As the term implies, it is an investment plan where you can deposit your lump sum money for a fixed period and earn a good interest amount.
The interest rate associated with this investment type completely depends on the principal amount invested as well as the investment tenure. So, on maturity, you’ll receive both the principal amount plus the compound interest. It is a well-known fact that potential investors prefer to invest in FDs because it is very safe and assures guaranteed returns.
Once you, as an investor, deposit your lump sum money, you keep earning a fixed amount of interest. Keep in mind that the returns here are completely unaffected by changes in the rate of interest or any market fluctuations.
(Tip: Before investing, calculate FD interest to invest in the best manner.)
What are the benefits of a fixed deposit?
● Interest Payouts
This can be fixed on a monthly, quarterly, or even annual basis based on consumer needs. Alternatively, it can also be renewed at maturity along with the principal amount to be continued as FD.
● Tax Saving FD
Remember that along with assured returns, there are also certain tax-saving benefits. It is eligible under Section 80C of the income tax act that offers an option for income deduction of Rs 1.5 lakh.
(Note: Tax-saving FDs have a lock-in period of 5 years.)
● Loan Against FD
You can also avail loan against a fixed deposit; almost all financial institutions offer this service. The amount of the loan is clearly based on the deposit value and tenure of the FD. However, ensure that you check with your bank about the rules and regulations around this facility.
What are the top 6 tips to earn more from your fixed deposit?
1. Choose the Right Term
The FD interest rates often vary with the term. The longer the term, the higher the interest rate. So don’t forget to assess your financial goals and liquidity needs before selecting the term.
(Note: A longer term may offer higher returns but also tends to lock up your funds for a longer period.)
2. Shop for the best rates
Different financial institutions offer varying rates of interest on fixed deposits. Make sure you research and compare rates from different institutions to find the highest rate available. In my case, I was lucky to get quite a lucrative interest rate from the Bajaj Finserv application, which a dear friend suggested. Highly recommended!)
3. Reinvest the interest
Without disturbing the defensive approach to investing, you can easily protect and take care of the principal amount and reinvest only the interest component in higher return-generating investment options. Once your maturity amount is credited into your account after the term ends, use the interest component to invest in equity-linked mutual fund.
4. Avoid early withdrawal
Remember to never withdraw your fixed deposits early, as most financial institutions levy a heavy penalty on early withdrawal before maturity. One interesting tip is to avoid large lump sum deposits, as you might need the money for an emergency.
5. Deposit in the name of your parents
Most financial institutions offer senior citizens an extra percentage on FDs. So, if your parents do not have taxable income, you may open FDs in their name. Keep in mind that if they come under the higher income tax bracket by any chance, avoid doing so. You can also use a FD calculator to get the right figures.
6. Link savings account with a bank FD
By automatically transferring the money from your Savings Account into an FD when the balance crosses a limit, you can save in a much more efficient manner. The money could be automatically transferred into an FD from your account when the money balance in it crosses a limit.
Before investing, keep in mind to use a Fixed Deposit Calculator Online. This will help you to save a lot of your time and help you invest in the right manner. Moreover, long gone are the days when people used to travel to financial institutions to invest. Nowadays, it is just you and your internet-enabled smartphone.