You need to make some strategic choices to maximise the returns of your FDs. It is important to understand the nuances of this financial instrument. Here is how you can maximise your returns from your fixed deposits:
- Choose a Suitable Issuer
Interest rates on fixed deposits vary between banks, NBFCs, and other financial institutions. Regularly compare the FD rates offered by different institutions. Platforms like Bajaj Markets or the official websites of the issuer can help. Also, do not overlook smaller regional banks and cooperative banks. These issuers may offer comparatively higher interest rates to attract deposits. This can help you earn higher interest.
- Opt for the Specialised FDs
Banks in India offer various FD schemes tailored for different segments of customers. These include FDs for senior citizens, women, and NRI investors. Such FDs often come with better interest rates and deposit terms. For example, senior citizens can enjoy an additional 0.25% to 0.50% interest over the regular rates.
- Understand the Interplay of Tenure and Interest Rates
The interest rate offered for an FD is usually based on the tenure you choose. Avoid locking in funds for long periods, unless the interest rate is high. This is because the interest rate could rise in the future. Having the amount locked in means potentially missing out on better returns.
- Negotiate with Banks
If you are making a large deposit, you may have some room to negotiate a better interest rate. This is especially the case with smaller or regional banks. You can ask for a higher rate, special offers, or waivers on any fees and charges.
- Consider Online Tools and Platforms
Utilise online calculators and financial planning tools provided by issuers. These can also be found on third-party websites like Bankbazaar. Such tools enable you to calculate the maturity amount and the interest earned. Some advanced tools may also allow you to check your tax liability. This empowers you to make informed and wise financial decisions. Online platforms like Bajaj Markets enable you to check various FD options. This gives you the power to choose the fixed deposit that best suits your requirements.
- Utilise the Laddering Technique
Laddering your FDs involves creating multiple fixed deposits with different maturity dates. This strategy provides liquidity over different periods and helps manage interest rate-related risks. Each time an FD matures, you can reinvest in FDs with higher rates or withdraw the amount. This helps you effectively multiply your savings and meet your financial obligations.
- Consider Tax-saving Fixed Deposits
Tax-saving fixed deposits are a great way to get a deduction under Section 80C of the Income Tax Act, 1961. However, these have a lock-in period of 5 years. The interest rate offered on these deposits usually goes up to 8.5% p.a. Weigh the tax benefits against the lock-in period before investing.
- Monitor and Renew Your FDs Actively
Always keep track of your FDâs maturity dates and prevailing interest rates a few weeks before maturity. If rates are expected to rise, consider short-term renewals. This enables you to reinvest the amount when the rates hike later. Wait for the rates to rise before locking in the amount for a long tenor.
- Observe Economic Indicators
Interest rates on FDs are influenced by broader economic factors. This includes the inflation rates and the monetary policy of the central bank. By keeping an eye on these indicators, you can make more informed decisions. It helps you time your fixed deposit renewal and new investments well. This can help you benefit from better interest rates and thus, higher returns.
- Break and Reinvest if Necessary
Sometimes, it may be beneficial to break an FD if interest rates have risen significantly. You can simply reinvest the amount at a higher interest rate to earn more returns. Be sure to calculate the penalty for breaking the FD early. Next, compare it against the potential earnings from reinvesting at a higher rate. Check whether breaking an FD and reinvesting is truly beneficial for you.
- Make Use of Sweep-in Features
Many banks offer a sweep-in facility. Herein, the excess amount over a set threshold in your savings account is converted into an FD. This ensures higher earnings from your FD. It also helps maintain liquidity in your savings account.
- Opt for Cumulative FDs
If you do not need regular income from your investment, opting for a cumulative FD can be more beneficial. In cumulative FDs, the interest is compounded regularly and paid at the time of maturity. This enables you to benefit from compounding, which results in higher total returns.
- Diversify with Corporate FDs
Corporate FDs often offer higher interest rates than bank FDs. However, they come with higher risk. Always check the credit rating of the corporate FD (preferably AAA ratings). You can opt for this option and diversify your investments to earn more and minimize risk.
- Stay Informed About Economic Trends
Interest rates are influenced by monetary policies set by the Reserve Bank of India (RBI). Keeping abreast of these policies and economic trends. This can help you time your investment decisions better to maximise returns.
- Use Fixed Deposits as a Part of a Balanced Portfolio
FDs offer safety and predictability. However, they generally provide lower returns than equities and mutual funds. Thus, it is wise to balance your investment portfolio across different asset classes. For this, consider getting the help of a professional. They can help you build a well-rounded portfolio based on your risk appetite and financial goals.
Strategically manage your fixed deposits with these focused strategies. This will enable you to maximise your returns while keeping your capital safe.
