Fixed deposits have always been one of the most availed investment avenues of Indian investors. The investors who like to be less exposed to be market fluctuations preferred fixed deposits (FD) as here the returns are almost fixed. Fixed deposits offer steady returns over a fixed period which is why this investment is considered the safest way for better returns. Before we know the ways to maximize the FD returns, let us first understand this investment vehicle in a better way. Here is
A Brief Introduction to Fixed Deposits
A fixed deposit is such an investment where you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested along with the compound interest. The tenure of a fixed deposit can be of 7 days to 10 years. The fixed deposit returns are considered as taxable income. A fixed deposit can be used as a loan collateral too. One can use a fixed deposit to avail a loan against the same. An investment in a fixed deposit can be done in two different ways, first is a recurring deposit account (RD) and the second one is making a one-time investment.
Tips to Increase the Returns from Fixed Deposit
Compare Interest Rate
The fixed deposit rates may vary from institute to institute. Needless to mention that the higher interest rate will bring more profit to the investor. It is important to choose a fixed deposit only after comparing various fixed deposit options available in the market.
Opt for a Cumulative FD Over a Non-Cumulative FD
Depending on the returns of a fixed deposit, a fixed deposit can be differentiated to two kinds- cumulative FD & a non-cumulative FD. A cumulative fixed deposit the interest is compounded every quarterly or yearly and paid at the time of maturity. Whereas a non-cumulative FD pays out the interest on monthly, quarterly, half-yearly, or annually as per the investor’s choice. If you opt for a cumulative FD, your earnings will be more as you will get an interest on the interest accumulated throughout the financial year.
Place Deposit in the Name of Parents
If your parents do not have any taxable income, then you start a fixed deposit in their name for a better profit. Using the senior citizen’s name in fixed deposit can bring more profit as the interest paid for a senior citizen is 0.50% more than the normal ones. So one can take advantage of this facility by using their parent’s name.
Opt for Annual Taxation
The interest on your fixed deposit is taxable, depending on your income. There is no fixed rule on the duration of deducting tax on the interest gained through a fixed deposit. Some of the financial institutes deduct tax on a monthly basis, some do it quarterly, half-yearly or some others do the same on a yearly basis. A borrower can earn a maximum profit if the deduction is done on a yearly basis. As the interest is calculated on a cumulative basis, longer the amount will be in the account, more will be the interest accumulated. Hence, while choosing any financial institute for fixed deposits, find the one which deducts tax on a yearly basis.
Submit Form 15g and 15h
If your income does not come in taxable range, you can submit the 15g and 15h forms to avoid tax deduction on your fixed deposit. The form 15g is for the persons who are more than 60 years of age whereas form 15h is for everyone. If a person’s yearly income is less than Rs. 2.5 lakhs, you can submit the form 15h to request the bank not to deduct TDS on the interest component of your FD.
Renewal of the Account
One can opt for a short-term fixed deposit to beat the inflation. But undeniable the fact that if you opt for a short-term investment plan, you are to keep on renewing the FD. One can earn a maximum profit from the regular renewal of the account. Let’s say you have invested Rs.5000 for a year. After the competition of the tenure, you will be receiving Rs.5500. So, once you receive the amount, it is better to invest Rs.5500 for the next year. In this way, after a certain period of time, you will be able to have a quite good return without getting exposed to any kind of market fluctuations.