Wednesday, 15 March 2017

How to make the most of your Fixed Deposits

For a vast majority of Indians, Fixed Deposits was one of the few investment options available. Besides, they were relatively risk-free and would accumulate a small percentage of interest every month and was all in all the most sought after investment avenues.
Fast forward to 2017, where SIPs, ELSS, and countless other products have popped up with the promise of offering bigger and better returns. But, despite all their advantages, they are still connected to the market, making them a riskier proposition, especially considering the trigger-happy economies of the world right now.
In this article, we will talk about the best ways to make use of an FD. Curious to find out? Read on.

  • Choose the right tenure
FixedDeposits are typically available for tenures ranging from 7 days to 10 years. The catch with these is that, longer tenure deposits often provide higher returns as well as benefits. But, when you enough money to open an FD, you should never be overly enthusiastic about the returns alone. Take you time and understand your financial requirements.
Say, for instance, you have a major expense planned for an occasion that is two years down the line. Make sure to open an FD that corresponds to that exact period. While at it, you can also consider special tenure FDs for 333 days and 666 days that banks offer when they are in need of immediate funds. Such schemes come with a marginally higher interest rate than regular FDs.
  • Get the best payout option
FDs usually come with different payout options. For instance, you can choose to withdraw the interest your money earns on a monthly, quarterly, half-yearly and yearly basis, or let it accumulate so as to collect the principal + interest at the time of maturity. Choosing the reinvest the interest into the deposit will give you a considerably larger corpus after the tenure.
  • Never go for premature withdrawal
You may already know that premature withdrawals are possible on fixed deposits, but what you might not know is that every time you do so, you will have to pay a penalty. Meaning, you are likely to lose whatever interest your money has accumulated. An alternative to this would be to split your amount and invest in multiple FDs for varying tenures. This will help you mobilise funds for emergencies without needing to pay any sort of penalties.
  • Always go for a tax-saving FD
The entire reasoning behind going for an FD is to save money but your attempts are mooted if you are liable for tax deduction. For instance, FDs that offer returns of more than Rs.10,000 will be taxed depending on the investor’s tax slab. A way to beat this would be to submit Form 15 H/G to the bank. Note that these forms will not absolve you from paying tax for your returns and to mention the money in your IT returns. To skip paying tax on your FD altogether, you should invest in tax-saving FDs, which often come with lock-in periods.
Overall, FDs, like any other investment, can offer you good returns but only when you use the right strategy and following the aforementioned points will help you make the most out of your FD.