8 Tips For Fixed Deposit Investors
Your money earns more in a Fixed Deposit than in a savings account. There are many Fixed Deposit schemes, you can choose them for tax savings, higher earnings etc.
8 Tips For Fixed Deposit Investors
Do you have a lot of money in your bank Savings Account? Especially after the recent demonetization?
Create a linked FD or take your money out and create different Fixed Deposit accounts for different tenures. Fixed Deposits give you higher interest on your money than savings accounts.
What are Fixed Deposits?
Fixed Deposits are special savings accounts. The bank can use the money in your deposit as part of its funds, and lend the money and earn an interest on it.
Your investment in Fixed Deposit is locked down for a set period of time. The bank is assured of the amount being available for a fixed period. They pay you a higher rate of interest than on savings accounts, from which you may withdraw money at any time. Use FD Calculation tools to find the best offers.
Fixed Deposit scheme
Banks and NBFCs offer many different Fixed Deposit Schemes. The basic categories are:
Regular Fixed Deposits
These are basic schemes where you can choose the tenure of the deposit, from 7 days to 10 years or more. Generally, the longer the tenure, the higher the interest your will earn.
Tax saving Fixed Deposit
If you choose a tax-saving Fixed Deposit, your money is locked-in for a period of five years. You cannot access this amount as loan against FD, nor can you break the account before maturity. However, the original principal amount you have put into this FD will be taken for tax deduction under Section 80C of the Income Tax Act. The maximum amount allowed for deduction is currently Rs. 1.5 lakhs.
This is also a kind of Fixed Deposit as your money is locked in for a specific period of time. You can invest small amounts each month. The interest is calculated on the increased amount each time. This is a good way to cultivate a disciplined savings regime.
Advantages of Fixed Deposits
They help develop the savings habit
Assured returns on the amount deposited
Tax saving benefits on the tax-saver FDs
Relatively easy liquidity as you can break deposit before tenure if you are in dire need of cash
You can also take a loan against most FDs and avoid the preclosure penalty
Loan against FD comes at very low interest and is a good way to avail of a secured loan in an emergency
Compounding of interest gives higher returns
Flexibility in terms of tenure, you can choose from a few days to a few years.
Disadvantages of Fixed Deposits
Money locked in for a set period of time
You have to pay a penalty for preclosure of Fixed Deposit
Interest earnings on FDs are taxed at your tax slab
TDS of 10% is carried out on interest earnings on bank deposits if the total amount earned for the year is above Rs. 10,000
Post-tax return is very low compared to potential earnings from other type of investments
8 Tips For The Fixed Deposit Investor
1-Fixed Deposits are highly secure savings options. Your savings in a particular bank is insured for a total amount of up to Rs. 1 lakh, by the Deposit Insurance and Credit Guarantee Corp.
2-Compare various FD schemes and use the online tools for Fixed Deposit calculator to find out the FD that gives you the best returns.
3-To optimize the insurance provided, spread your savings across banks. For instance, if you have Rs.5 lakhs that you intend to put in FDs, open separate accounts for Rs. 1 lakh each across different banks.
4-Create deposits in staggered tenures. As an example, if you are creating 3 FDs, create one for FD for a tenure of three years, one for two years, and one for a year. That way, you will have access to the amounts in your FD each year, without needing to break one.
5-Choose compounding of interest on your FD if you do not need the interest payment as regular income.
6-If you are above 60, opt for a senior citizen deposit. You can generally earn 0.25% to 0.5% higher interest, depending on the bank.
7-If you are sure you will not need the cash for a longer time, choose long term FDs, the interest rates will be higher.
8-Mix FD with other investments in your savings and investments portfolio.
Use these tips to earn the maximum benefits from your Fixed Deposits.