According to Indian investors, Fixed Deposit (FD) is the most preferred investment. The investors who don’t want to take a risk with their investment often choose r fixed deposit as it doesn’t depend on the market for its returns. A fixed deposit will give you the initial amount fully at the end of the tenure, it will also give steady interest rates regularly for your expenses.
A fixed deposit is investing a lump sum of money for a particular tenure with attractive interest rates. After the tenure ends, you will receive the initial investment and the interest amount generated will be given as per the investor’s request at the end or during the fixed deposit tenure. The fixed deposit tenure ranges between days to years. When you are in need for sudden funds you can even get a loan against your fixed deposit.
However, before you invest in a fixed deposit there are certain things you need to know and it will also help you earn more.
Compare interest rates:
When it comes to fixed deposits the interest rate plays a very crucial role. The interest rates vary with each financial institution. The most important criterion for choosing a fixed deposit is the interest rate. Make sure you do thorough research about all the financial institutions and the interest rates they offer. Filter the financial institutions who give the best interest rate in the market and see whether they are conducive to your requirements.
Split your money:
When you plan on investing your hard-earned money in a fixed deposit, make sure to split the money and invest it in different institutions. It will help you a lot when you have an emergency, you don’t have to take out the entire amount. Also, the premature penalty will be very less as the sum is very less. Also while calculating Tax Deducted at Source (TDS) it will be advantageous. TDS is estimated at branch level, so if you split and invest your TDS won’t exceed Rs.10,000 in a financial year.
Opting for a cumulative fixed deposit over a non-cumulative fixed deposit:
As a non-cumulative fixed deposit pays out its returns on pre-specified periods, it will not accumulate much of interest over the tenure. Whereas when you consider cumulative fixed deposit, the interest and the initial amount both will be accumulated and will be given back only after the end of the tenure. A fixed deposit is considered as the best investment plan because of its wealth accumulation rate, so when compared to the non-cumulative option, the cumulative fixed deposit is considered to be the best to earn more.
Deposit in your parent’s name:
When your parents are senior citizens their interest rates will be high by 0.5% than standard fixed deposit rates. You can invest your fixed deposit on their name to avail the additional interest rates and benefits. But make sure they don’t come under taxable income else that will also have effects of taxation.
Depending upon your income, your interest on fixed deposit will become taxable. The duration of deducting tax for the interest we get through fixed deposit doesn’t have a particular rule. Some pay the interests in monthly, quarterly and half-yearly basis for their non-cumulative fixed deposit. When you have a yearly deduction it will be more profitable for you as an investor. Finding a financial institution which deducts tax on a yearly basis is a very important step in earning more from your fixed deposit.
Submit form 15G and 15H:
When you see that your TDS is deducted, you should start submitting form 15G and 15H if you don’t have taxable income. Making sure of this will improve your returns and ensure if additional tax cuttings are done. This is only applicable if you are below the threshold of Rs. 5 Lakhs. When you fill these forms, it will ensure the authorities not to levy TDS on your fixed deposits. When you do this the interest that gets accumulated on your fixed deposit will not be taxable.
Opting for company fixed deposit:
When opting for a fixed deposit, both banks and Non-Banking Financial Companies (NBFCs) both offer fixed deposits. When compared to banks, NBFCs offer higher interest rates..
The only important thing which you should make sure of when you choose an NBFC is to check if they are rated with AAA+ certification. This rating will ensure the financial security of the company.
Open an online fixed deposit:
Some of the banks and NBFCs offer extra interest if you open an online fixed deposit. The bank or NBFC which you are putting your fixed deposit in might not be very near for you. So opening an online fixed deposit will make sure your EMI payments and other things very easy and time-saving.
Don’t withdraw the deposits before the tenure:
Most of the banks and NBFCs charge you with additional charges when you foreclose your fixed deposits. So make sure you don’t do it to avoid the hefty pre-payment charges and loss of interest s. This is where splitting your fixed deposit will be of help. You can just cancel a single fixed deposit for your financial needs and other lump sums will be safe for the future.
Reinvest your fixed deposit:
You can reinvest your interest rates into another fixed deposit or recurring deposit – this will keep on circulating the flow of cash in your account. Also at the end of each tenure, you can renew your fixed deposit. When you don’t want to use your savings unnecessarily, you can keep auto-renewal for all your fixed deposits. Also while choosing a lender make sure to check their renewal policies before taking in their fixed deposit.
Doing thorough research on all the above things and assessing which bank or NBFC suits you the best is the first step you have to do. Once when you have an idea of everything you will know exactly where to invest your money and earn more.