Fixed Deposits, commonly referred to as FDs, have been a preferred savings option for many Indians over the years. Their popularity lies in the safety they offer and the certainty of returns. Whether you are just starting your investment journey or exploring ways to grow your money without market-related risks, FDs can be a dependable choice.
However, how do you make sure you are getting the best value out of your FD? Let us explore a few practical ways to help you secure the best FD interest rates and maximise your returns:
Getting the best FD interest rates
Interest rates on FDs differ based on tenure. It is always a good idea to start by checking your bank’s official website. They usually list the current rates across various deposit periods. Interestingly, sometimes a slightly longer tenure, even by a single day, might come with a better rate. Therefore, carefully comparing the tenure options before committing your funds can help you secure the best FD interest rate for your investment.
Maximising FD returns
One common way people miss out on higher earnings is by opting for regular interest payouts. If your goal is to grow your savings, consider selecting the reinvestment or “cumulative” option instead. This means your interest is added back into your deposit, letting you earn “interest on interest”. This process is known as compounding. It typically boosts the final return amount at the end of your FD term.
Tools like an FD interest calculator can give you a clearer idea of how your money may grow. For example, you invested Rs. 5 lakh in 2018 for a five-year term at a 7% rate. In just the first quarter, you earn about Rs. 8,822. Thanks to compounding, by the final quarter of the fifth year, your interest might rise to Rs. 12,265, nearly Rs. 3,443 more than in the beginning.
Simple tips to make the most of FDs
Here are the tips that can help you make the most of FDs:
- Check rates regularly: Different banks and tenures offer different rates. Keep yourself updated.
- Tenure matters: Even a minor change in tenure can bring a better rate.
- Senior citizen FDs: If eligible, senior citizens often get higher rates.
- Choose reinvestment: Instead of monthly or quarterly payouts, go for cumulative FDs to benefit from compounding.
- Be aware of taxes: Interest is taxable. TDS applies if annual interest exceeds Rs. 40,000 (or Rs. 50,000 for senior citizens). Limits may vary by financial year.
- Avoid early withdrawals: Premature exits may reduce your gains. If funds are needed, consider an overdraft against the FD instead.
Conclusion
FDs remain a safe and steady way to grow your savings. Making small yet informed choices, such as selecting the right tenure or reinvestment option, can significantly impact your returns.
