Fixed deposits (FD ) are a safe investment tool as they are easy to open and offer limited returns. They are the go-to investment option for risk-averse investors. There are even a few tax-saving fixed deposit schemes. You would have come across many articles or consultants advising you to make investments, and you went ahead and made them. But you are now probably wondering how you can enhance your return on these deposits. Well, read on to find out – some are listed below –
It would be best to research before investing in finding out who is offering the highest interest rate. However, the interest rate should not be the sole factor in your decision. You must also keep in mind the credit rating and its previous performance.
This strategy involves splitting your investments into multiple deposits with different tenures. This has three advantages mainly. Firstly, it provides you with liquidity at regular intervals. Secondly, it helps to average the effect of interest rate changes over time. Lastly, it helps in tax saving also.
3. Form 15G/15H:
If the interest earned is above a specific threshold, then TDS will be deducted on such an interest amount before getting credited to your account. You can submit form 15G/15H (for senior citizens) to avoid this.
4. Loan against Fixed Deposit:
Suppose you have an emergency and you require immediate funds, you have two options, either to make a pre-mature withdrawal or to take a loan against your fixed deposit. If you opt for a pre-mature retreat, it will result in a penalty and a reduction in the interest payable, thereby reducing your returns. In such cases, you can verify if there is a loan facility available against your fixed deposit and pay interest only for the period you utilize such a loan. This will help in maximizing your return and is more beneficial.
5. Avoid longer tenure Fixed Deposits:
It is better to opt for shorter-term FDs to ensure that your fixed deposits are not locked at lower interest rates. Whenever the interest rates for short-term FDs start rising, you can begin to increase the tenure of your fixed deposit accordingly.
6. Choose Fixed Deposits that have cumulative options:
In a cumulative fixed deposit, interest is added to the principal, and thus you earn interest on interest. This compounding effect helps to achieve a higher rate of return.
7. Floating rate option:
The interest rate in a fixed floating deposit is linked to a benchmark, and the interest rate moves according to the market rate fluctuations. Therefore, by investing in them, you can ensure that you always receive the rate ongoing in the market and nothing less.
All in all, fixed deposits give you the ideal combination of low risk and an adequate return. There are many ways to enhance your return on your fixed deposits. However, it involves some careful planning. If you spend sufficient time on research before you make any investment, you can rest assured that you will receive a higher return than all your peers.