Fixed deposits offer a level of stability that most securities fail to offer. For this reason, the allure of these FDs is great. However, given the uncertain state of the market and the repo rates varying for different banking institutions, you should know how to make the best of the existing condition.
Planning your investment strategy is a good way to get the highest FD rates in terms of real interest income. Some banks offer marginally higher percentage points for opening an account online rather than through their branches. Knowing the interest payable is of immense importance as it is your earning. However, it is equally important to know the credibility of the banking institution. Government affiliated banks are safer when compared to NBFCs who are working for profit.
Go through credit rating and prospectus to understand the risk probability. Consult experts and remember, to earn an additional half per cent interest, you should not risk your principal amount. Additionally, some banking institutions offer a better rate for reinvesting. You’d want to cash in on that. If you’re likely to forget this, you can always give a standing instruction.
Taxation plays an important role in determining what the real income you receive by way of FD interest rates is. Investment in certain portfolios gives you tax exemptions. Utilising them might increase your net returns. If your total income for any financial year is below taxable income levels, then you can file forms 15G and 15H. It will ensure that your FD interest income is not subject to TDS.
When we talk about returns from FD, we don’t talk in terms of absolute income. We talk in terms of real income. This distinction is important because returns are only as useful as the situations that require them. You can’t invest everything you have and wait for future returns. One good strategy is creating multiple corpuses, so that you don’t need to suffer penalties of early withdrawals.
Since you won’t even get proportional interest for the period invested in, early withdrawals are a bad idea. Multiple corpuses, on the other hand, take advantage of inflation-adjusted FD interest rates while still leaving you with enough for rainy days.
Immediate Financial Requirement
If your goal is increasing savings while having enough working capital, you can go for cumulative deposits that reinvest the accrued interest. Non-cumulative deposits, on the other hand, help you in regular payouts. So, the decision of which one to choose depends a lot on what your requirements are. Cumulative deposits make sense as a retirement plan, those saving up for a specific purpose, and for those with surplus idle funds. For everyone else, non-cumulative deposits might be ideal.
Maximizing your returns on investment requires shrewd decision-making. It is not rocket science. It needs proper research and an in-depth understanding of what you’re investment options are. While this may be daunting, the payoff when you see marginally, let alone significantly, higher returns will be worth the effort.