How to Maximise the Returns on Your Fixed Deposit?
Fixed deposits (FDs) are a popular investment option among Indian investors. These are low-risk investment options that provide stable and guaranteed returns. However, the returns earned from FDs are lower compared to other investment avenues.
There are several strategies you could employ to maximise your fixed deposit returns. Here are some tips to help you get the most out of your FDs.
1. Choose the Right Tenor
The tenor of your fixed deposit plays a crucial role in determining the interest rate. Generally, longer tenors offer higher interest rates compared to shorter tenors. However, it is important to strike a balance between the tenor and your liquidity needs. Longer tenors lock your money for an extended period, limiting access to your funds during emergencies. In dire situations, you could opt for a premature withdrawal. Do note that you may have to pay a small penalty to get the amount immediately.
2. Compare and Select FDs
Maximise your returns FDs by comparing interest rates offered by different issuers. With digital banking and online platforms, it has become easier to find some of the best FD options. Bajaj Finance FD rates, for instance, are known to be some of the highest offered to investors in India. So, explore various options to identify the most profitable one. Ensure that these fit your financial needs and investment goals.
3. Ladder Your Investments
Laddering is a strategy that involves investing in multiple fixed deposits with different tenors. This helps you benefit from varying interest rates over time. It further ensures a regular flow of income as each FD matures. For example, you could divide your investment into equal parts and invest in 1-year, 2-year, and 3-year FDs. As each deposit matures, reinvest the amount into a new FD. This could be a great way to accumulate wealth over the years.
4. Invest in Cumulative FDs
Cumulative FDs enable you to earn some extra money. Under this type of fixed deposit, the interest is compounded annually. This could aid in boosting your total returns, especially over a longer tenor.
5. Explore Special FD Schemes
FD issuers often offer special schemes with unique benefits. These include senior citizen FDs and tax-saving FDs. Senior citizen schemes usually come with some of the highest FD interest rates. On the other hand, tax-saving FDs provide tax benefits under Section 80C of the Income Tax Act, 1961. These allow you to claim deductions on your FD returns and save on taxes. Under this provision, you could claim deductions of up to ₹1.5 Lakhs per financial year.
6. Opt for Automatic Renewal
Many issuers offer the option of automatic renewal of FDs upon maturity. This feature could be advantageous and quite convenient. It ensures that your FDs continue to earn interest without any interruption. However, do not forget to review the renewed interest rates. Make sure that they align with your investment goals and financial obligations.
7. Consider Premature Withdrawal Penalties
You could access the locked-in amount through premature withdrawal. However, it is important to understand the associated penalties or reduced interest rates. These penalties can vary across issuers and could impact your overall returns. Before investing, carefully review the terms and conditions related to premature withdrawals. Also, factor in the potential costs of such a withdrawal when planning your finances.
8. Stay Informed about Market Trends
Interest rates on FDs are influenced by various economic conditions. This includes the monetary policies set by the RBI and inflation rates. Keep yourself informed about the market trends and adjust your investment strategies accordingly. If interest rates are expected to rise, consider investing in shorter-term fixed deposits. You could then reinvest the matured amount at a higher rate when the market conditions are favourable.
9. Consult a Financial Advisor
If you are unsure about the best strategy to meet your goals, get advice from a financial advisor. They can provide personalised advice as per your monetary situation. Furthermore, they can help you make informed decisions while considering your risk appetite. These professionals could aid in building an investment portfolio that aligns with your needs.
Maximising returns from fixed deposits investments requires a combination of strategies and careful planning. Choose the right tenor, ladder your investments, and explore special schemes. Opt for automatic renewals, diversify your portfolio, and stay informed about the latest market trends. Also, seek professional advice when needed. This can help you get higher overall returns and achieve your financial goals.
Do remember that fixed deposits may not always provide the highest returns compared to other investment avenues. Thus, evaluate your investment objectives and financial plan before opting for an FD. Follow these simple tips and stay vigilant. This could help optimise your fixed deposit investment for better returns in the long-term.
Disclaimer: This article is published in association with Bajaj Finance and not created by TNM Editorial.