Fixed deposits (FDs) are an investment option that offers safety and predictability. FDs come with a stable rate of return over a fixed tenor, making them a preferred option for many. It can even help you generate regular income. Simply, opt for the monthly interest payout option under a non-cumulative FD. However, the overall return of such FDs is usually lower than that of cumulative FDs. This is because the interest is not compounded in the non-cumulative option. Let’s check various strategies to maximise returns from these FDs:
1. Compare and Choose for the Best Rates
Interest rates on fixed deposits can vary between banks and financial institutions. To maximise returns, it’s crucial to compare the FD rates offered by various banks and NBFCs. Websites like BankBazaar or Bajaj Markets can provide comparative data. This can help you make an informed decision. Use online tools like FD calculators to check the fixed deposit monthly interest. This can help you budget and plan your monthly finances efficiently.
2. Consider Company Fixed Deposits
While riskier than bank FDs, company fixed deposits often offer higher rates. NBFCs like Bajaj Finance and HDFC offer such FDs. These generally have better interest rates than those offered by banks. However, before investing do check the credit rating of these deposits. Ideally, only invest in options that are rated ‘AAA’ as they denote the highest level of safety.
3. Ladder Your Investments
Laddering involves dividing your investment into multiple FDs with varying maturity periods. This strategy provides liquidity over different periods. It also helps you benefit from higher interest rates for longer tenors and potential rate hikes in the future. As each FD matures, you can choose to reinvest it depending on the rate at the time.
4. Use Auto-renewal Wisely
Many banks offer an auto-renewal feature. Herein, the FD is renewed on maturity at the prevailing interest rate. While this is convenient, it might not always be financially advantageous. It can be non-beneficial, especially if the rates have dropped. Always assess the current interest rates before the maturity date. If better rates are available, consider manually renewing. You can also transfer the FD to another institution on maturity if required.
5. Tax-efficient Investing
For those in higher tax brackets, the interest from FDs can be significantly taxed. This reduces the net benefit. One way to handle this is by opting for tax saving fixed deposits. These are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. Although, these come with a long lock-in period of 5 years.
Another strategy is to split the investment among family members. Ensure that they are in lower tax brackets to properly optimise the tax returns. Ensure that this is done within the set frameworks to avoid legal issues.
6. Monitor Macroeconomic Factors
Interest rates on fixed deposits are influenced by the broader economic environment. The policies set by the Reserve Bank of India usually play the most significant role. Thus, it is very important to keep an eye on these trends. This can help you lock in your FD when rates are high. Furthermore, it enables you to avoid long-term commitments during low-rate periods.
7. Senior Citizen Benefits
If you are a senior citizen, you can benefit from higher interest rates. The rates offered to elderly depositors are typically 0.25% to 0.50% higher than the regular rates. Always check if these benefits apply to you and capitalise on them.
8. Hedge Against Risks
Fixed deposits offer safety and predictable returns. However, they may fail to keep pace with certain macroeconomic challenges. This can be quite detrimental and damage your purchasing power. Protect the value of your investment, consider diversifying a portion of your portfolio.
These could include real estate, commodities, or bonds. This strategy can help maintain the real value of your earnings over time. Do note that the central bank may increase the repo rates to curb inflation. You can turn a crisis like inflation into a high yield earning opportunity. A rise in repo rates usually leads to a surge in the FD rates. Invest in an FD at such a time to make the most of your deposit.
9. Digital Platforms
Consider using online platforms and apps offered by banks for managing your FDs. These platforms may offer higher rates for the same products than offline channels. Also, investing directly through a bank’s portal can also help you get high rates. You can also consider financial marketplaces like Bajaj Markets ( bajajfinservmarkets.in ). Compare multiple options and book an FD through a simple application process online.
Maximising returns from fixed deposits with monthly interest requires thorough planning. Strategic planning, monitoring economic conditions, and smart financial practices can help. You can adopt these strategies to effectively enhance your earnings from fixed deposits. Ensure a steady stream of income while also maintaining the safety of your deposited amount with an FD.
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