Opening a Fixed Deposit account is something of importance in today’s economy. But, how does one ensure that their FD gets them the best possible returns? Read on to find out.
Fixed Deposit accounts are a type of savings account that functions on a fixed interest rate for a predetermined period of time. Once the account matures, the interest is then credited to you, the investor. Fixed Deposit rates in India are constantly fluctuating, so if you opened your FD at a reasonable interest rate, then you probably have nothing to worry about. However, here are a few ways to improve your returns from your FD.
- Type of deposit
Most banks or NBFCs offer a choice between Fixed Deposit and recurring deposit. In a Fixed Deposit, you deposit all your money at one go. In recurring deposit, you deposit your money in instalments. Each one comes with slightly different interest rates, so be sure to check those thoroughly.
- Insured Deposit
Irrespective of the type of deposit, or the interest rate you credited it on, your deposit amount is guaranteed back to you. Except for extreme circumstances, the investor will be guaranteed their amount deposited at the date of maturity. If you are in urgent need of the money that you have deposited in your FD, you can request for a loan from the same.
- Fixed returns
In exchange for keeping your deposits safely, the bank offers to pay an interest rate. The longer the term of deposit, the higher will be the interest rate. You can choose between fixed and floating rates, depending upon the market status at that point.
The interest rate would usually increase with the tenure, but in some cases a three-year duration may fetch more interest than a five-year one. It changes from bank to bank, so be sure to research the interest of the duration you wish to deposit for.
The interest on your FD is taxable, depending upon your income. This is changing due to the budget released by the government; however, if you fall under the high tax bracket, you will have to pay around 30% plus surcharge. That being said, remember that interest rates are quoted higher for senior citizens, with low tax charges. Post recent changes, taxation seems to be quite a manageable element.
- Public Sector Banks
These banks offer higher interest returns than private banks. They also offer a much higher security. If you’re a newbie in the Fixed Deposit section, then a public sector bank will do you good.
However, armed with the right research and financial advice, don’t fear testing the waters of any bank or NBFC that offers your what you need.
- Breaking the FD
If you wish to close your Fixed Deposit account before maturity, i.e. withdraw the deposit before the predetermined date, it will not come free. Termination of FDs prior to their maturity date (premature withdrawal) comes with a price tag which is almost always high. So, keep in mind that once you decide the tenure, you’ll be garnering more loss than gain by breaking the contract.
- Income Source
If your monthly income keeps you on edge then you can opt to get the interest on your Fixed Deposit credited to you monthly. There are also options for getting it credited annually, or even at the date of maturity. These options make it easier to avail the benefits of the interest, and are highly recommended for senior citizens. You should also decide on a maturity date depending upon your financial goals and requirements. With the help of a FD maturity calculator, you can plan your budget well.