People who foresee an urgent need for funds think twice before investing in a Fixed Deposit (FD). They argue that the FDs are not flexible, and breaking them before maturity incurs a loss. Others believe that they can earn higher returns elsewhere and do so.
Yet, in urgent need of funds, the depositor can secure a loan up to 90% of the value of their FDs. They can earn a higher return.
Fixed deposit are safe investments. Follow the guidance, and you will soon have a much better returns on your investment.
Here are six ways to increase returns from FDs:
1. Invest in Companies with High Crisil Ratings
FD are comparatively risk-free investments. But banks offer a maximum interest rate of 6.25%. Non-Banking Financial Company (NBFC), specifically those with a AAA Crisil rating, offer much higher interest rates, up to 9%. Plan your investment only after studying the FD interest rates of the various banks and NBFCs.
2. Choose Cumulative Deposits
FDs are of two types:
Non-Cumulative Deposits earn interest quarterly, monthly, half-yearly, or yearly at depositors’ discretion. The borrowing bank or NBFC transfers the funds to the investor’s Saving bank account as per their prior instructions.
In the case of a Cumulative Fixed deposit, the investor receives the benefits of compounding. Depositors can instruct the bank of their depositing intention. The bank then reinvests the interest to pay it back with the principal and compound interest on maturity. This increases the return on investment.
3. Invest in a Fixed Deposit in the Name of Your Parents
Senior citizens (individuals above 60 years) earn a higher interest from their investment than the others. They receive 0.50% more as interest. You can get more when you invest in their name than you will get on deposit in your name. Invest in the name of your parents to get a higher return from FD.
4. Laddering Fixed Deposits
Instead of depositing all your savings in a fixed deposit, spread it out over multiple FDs maturing at different times. It will help when you have a sudden financial need.
The tenure of one of your deposits will end to help overcome your financial constraints. You will not need to break a deposit and lose interest in the bargain.
5. Pay Your Taxes on Time
The interest that depositors earn on FDs is taxable. But if you pay your taxes on time and submit form 15G/ 15H, you get an exemption up to a fixed amount. If your interest income does not exceed that figure, you can claim exemptions and thus earn a higher income from investment.
6. Instead of Breaking An FD, Get A Loan Against It
If you break your FD before maturity, banks will levy a penalty of 1% of the interest. It is for this reason depositors must never break their FDs.
In case of an emergency, it is better to take a loan against the FD instead of breaking it.
FDs are safe investments. Follow the guidance, and you will soon have a much better returns on your investment.