- It is impossible to imagine a well-protected financial portfolio without Fixed Deposits. They are the support ladder of any sound investment plan and protect your principal amount.
- If you have Fixed Deposits, there will always be an option for liquidity. If the markets are low, you can avoid withdrawals from your equity investments and give them the time they need to grow.
You can optimize your FD returns by following these tips.
Avoid premature withdrawal
- People who have done long term investments in Fixed deposits due to high-interest rates do tend to withdraw their FD prematurely.
- When you withdraw maturely, you only earn interest till the day you stay invested.
- There is a withdrawal penalty as well.
- You lose the reinvestment benefits of your intermediate receipts.
- If there is a need for money, you can take a loan against the FD. The FD interest rates are relatively low.
- If you need money frequently, you can have a fixed deposit sweep-in account.
Have different maturity dates for your Fixed Deposits
- Use a Ladder Investment Strategy where you have Fixed Deposits with different dates of maturity. You can also ensure sufficient liquidity.
- If you keep some deposits for longer-term, you can benefit from higher interest rates.
- Suppose you have ₹ 10 lakh to invest. Then split the amount into five deposits of ₹ 2 lakh each for one, two, three, four and five years. Using this ladder strategy, you can balance out the high and low interest in some time. This will help you get liquidity as your one fixed deposit every year and maximise your returns of FDs.
Opt for Cumulative Fixed Deposit Plans
- The interest accrued in the Cumulative Fixed Deposit Plans is not paid out but instead re-invested. In Cumulative Term Deposits, the interest is not paid out, but it is re-invested giving you a compounding effect on your FDI investments.
- Non-cumulative FDs pay regular interest (monthly, quarterly, half-yearly or annual basis). So, there is no compounding effect. It is suited for people such as pensioners who need payouts at regular intervals.
Choose Corporate Fixed Deposits accounts with High Credit Ratings over bank
- Corporate Fixed Deposits usually offer higher interest rates than bank deposits. Remember to choose only reputable ones with AAA credit ratings.
- Also, check the interest rates offered in the past ten years.
Submit Form 15G or 15H
- If you earn more than ₹ 40,000/ annual interest on your FDs and your yearly income is less than ₹ 5 lacs, you are eligible to submit Form 15G or 15H.
- You can prevent tax deduction on your FDs by submitting form 15G or 15H.
Make Fixed Deposit Investments in your Parent’s Names
The interest rates are usually about 0.5% higher for senior citizens. So, if you place your FDs in your parent’s name, you can avail higher interest rates.
Invest in Fixed Deposit Schemes Online
Research about banks that offer higher FD interest rates on online deposits to promote digital transactions. Ask the financial institution if they offer higher interest if you invest online.
Beat inflation by investing in a short-term FD
Statistics suggest a correlation between inflation and interest rates—as inflation rises, interest rates follow. So, if you are aiming for wealth creation and beating inflation, then investing in short term Fixed Deposits is more suitable than the long term.
Conclusion: Fixed Deposits are an essential part of your investment plan. It provides you with liquidity for emergencies while protecting your other investments. Using these tips will not only help optimize your returns but also helps in beating inflation, tax rebate, etc.