When you have sufficient disposable income, you usually consider investing it strategically. But the same idea should be applied to your regular income as well. Stacking away a portion of your hard-earned money helps you in many ways. It saves you in times of financial distress and empowers you to achieve your goals.
An excellent way to embrace this practice is by availing of Fixed Deposit (FD) facilities. They let you park your capital for a fixed term and earn returns at a fixed interest rate. However, you can enjoy higher interest rates easily by implementing a few tips; here is how:
Compare rates
Every bank issue a different interest rate on FDs. The structure entirely depends on factors like:
- Your banking partner’s policy
- The investment amount
- Tenure
- Type of account
Hence, it is wise to consider these factors and make a pick based on research. Start by shortlisting banks that offer the best FD interest rates. Then, assess the abovementioned aspects to select one that matches your needs.
Choose the right duration
As your funds stay locked for the chosen tenure, it is essential to choose one wisely. Consider your liquidity needs for the same to avoid premature withdrawals. Withdrawing before maturity not only costs penalties but also reduces interest income. Hence, plan your investments based on your financial goals and withdrawal requirements. Leverage Banking apps, websites, and other reliable sources to get an idea.
Make use of tax benefits
Bank Deposits provide their holders with specific tax provisions. This, however, depends on your interest income and account type. As with Term Deposits, you are eligible to get up to Rs. 1.5 lakh under Section 80C. It is when you opt for a Tax-Saving Account with five years of tenure. You can also claim the exemption when your income does not fall under the tax slab.
You need to submit a declaration form 15G or H for this. You should also comply with the process specified by your bank from thereon.
Spread your investments
When you start your investment journey, you are often advised not to pull all your eggs in one basket. The same philosophy applies to Bank Deposits. To maximise your Fixed Deposit interest rates, you must create multiple sources to expand your interest earnings. Open multiple RD and FD Accounts with different banks. This practice is known as laddering, where you invest in varying amounts, tenure, and interest rates to mitigate risks.
Let compounding work its magic
The best way to maximise your FD rates is to stay patient. Allow the power of compounding to accumulate your interest earnings. Refrain from making premature withdrawals, which can hamper the growth of your interest income. When you open an FD, you get to choose between monthly or quarterly interest payouts and reinvestment of interest. Always choose the latter to get the best interest returns.