We all invest our hard-earned money to get a good return on our investments and earn profits without any form of risk. Fixed deposits are one investment instrument which is undoubtedly the package in itself. With the convenience of opening an FD account, what makes it a viable option for investment is the return on investment and safety associated with the fixed deposits . The best part is you can save effectively with fixed deposits if you strategize your investments.
What are fixed deposits?
A fixed deposit is an investment instrument in which you allocate your funds in your FD account for a fixed tenure. The tenure of bank fixed deposits can vary from 7 days to 10 years. As you deposit your funds, banks provide you interest on your deposits, which is provided at the end of the tenure of the fixed deposit rates along with the principal amount.
How can you earn interest on the fixed deposits:
Fixed deposits offered by both banks and Non-Banking Financial Institutions generally offer two methods of getting the interest earned on your fixed deposits;
Cumulative fixed deposits: The interest on cumulative fixed deposits is compounded at the end of the maturity period. The rate of interest on compounded fixed deposits is higher as the interest is paid at the end of tenure.
Non-cumulative fixed deposits: The pensioners who want to get a regular return on the investments can invest in non-cumulative fixed deposits as the interest is compounded regularly; monthly, quarterly and annually.
Why should you invest in a fixed deposit: One of the reasons why you should consider investing in a fixed deposit is that they offer higher returns than a regular savings account and opening an FD account is as easy as opening a savings account. You can open an FD account in any public or private sector banks, small finance companies, post office etc. These days you can also open an FD account online, which is far more convenient than any other mode of investment.
The primary reason why people choose fixed deposits is that they can earn a stable interest over the tenures of your investment period. The rate of returns on the investment are determined as per the RBI policy and does not get affected by the market risks. Presently, the interest in Bank FD ranges between 4%-9%, varying from bank to bank. The cache is smaller banks provide a higher rate of interest on fixed deposits.
Tips to maximize returns on your FD investments:
Are you planning to invest in a fixed deposit? Follow these tips to save with your fixed deposits efficiently.
- Comparing the rate of interest
To get the maximum returns on your FD investment, you must compare the interest rates provided by smaller and big banks. You can also consider investing in a company fixed deposit as they offer a higher rate of interest. However, you must also check the credibility of these financial institutions to avoid any risk of defaults.
- Deciding about the tenure of investments:
Banks and other financial institutions provide a higher rate of interest on the long-term fixed deposits. Longer the mandate of fixed deposit, the higher returns you will get on your investments. If you want to determine the investment tenure, an online tool like an FD calculator can make things simpler for you, thus saving time and efforts in the calculation of returns.
- How to save taxes on your fixed deposits:
The investments in a fixed deposit are taxable, and you need to pay taxes on your investment as per the tax slab rate you belong. However, to save taxes on your finances, you must invest in multiple FD rather than investing in a single FD. It is because there is a predetermined limit on when you need to pay taxes on the interest earned. You have to pay 10% TDS if the interest income exceeds Rs 10,000 and thus splitting the FD can help you to save taxes.
- Getting higher returns:
Also, you must invest in smaller FDs as it will help you to manage the changing rates of fixed deposits.
Summary:How to save effectively with a fixed deposit investment plan ?
A fixed deposit is an investment instrument in which you allocate your funds in your FD account for a fixed tenure varying from 7 days to 10 years. As you deposit your funds, banks provide you interest on your deposits, which is provided at the end of the tenure of the fixed deposits along with the principal amount.
Tips to maximize returns on your FD investments:
- To get the maximum returns on your FD investment, you must compare the interest rates provided by smaller and big banks. You can also consider investing in a company fixed deposit as they offer a higher rate of interest.
- Banks and other financial institutions provide a higher rate of interest on the long-term fixed deposits. Longer the mandate of fixed deposit, the higher returns you will get on your investments.
- The investments in a fixed deposit are taxable,however, to save taxes on your finances, you must invest in multiple FD rather than investing in a single FD. You have to pay 10% TDS if the interest income exceeds Rs 10,000 and thus splitting the FD can help you to save taxes.Also, you must invest in smaller FDs as it will help you to manage the changing rates of fixed deposits.