When you invest in a fixed deposit (FD), you want the capital to grow. However, in a falling rate regime, getting high returns seems like a distant dream. That being said, there are indeed a few ways to maximise the returns from an FD.
Read this article to explore some incredible ways to increase FD returns without any hassle.
The Top-5 Tips to Maximise FD Returns
1. Create a Time-Tested Strategy
The first thing you need to do to increase the FD returns is to devise a strategy. The strategy may involve anything from planning the duration to choosing the financial institution. If you stay invested for a long duration, such as ten (10) years, the returns will be substantially more. Also, if you invest in a housing finance FD, such as from PNB Housing Finance, you can get a 1% to 2% higher FD interest rates than conventional public sector banks. Hence, devising a well-laid-out strategy is the first step to maximising the FD returns.
2. Submit 15G/H on Time
The interest you earn from an FD is fully taxable. If you have submitted the PAN card at the time of account opening, the financial institution will deduct a 10% TDS (Tax Deducted at Source). However, if you do not submit the PAN, the rate will be 20%. To avoid paying TDS, you can submit Form 15G/H at the beginning of a financial year. Remember to file the Income Tax on time, though.
3. Rely On the Laddering Method of Investment
Generally, when you want to invest, you choose an FD scheme with the best interest rates and invest in a lump sum. However, investing a lump sum might increase your tax slab and not aid financial planning since the amount remains locked until maturity. A better option is to divide your investment amount into chunks. For example, if your investment amount is INR 10 lakh, you may divide it into five fixed deposits of 2 lakh each. Ensure that you choose a different maturity term for each FD. This approach ensures adequate liquidity and decreases the tax.
4. Create a Mix of Cumulative and Non-Cumulative FDs
A non-cumulative FD provides you with an assured amount at fixed intervals. You may choose to receive the interest amount monthly, quarterly, half-yearly, or annually. A cumulative FD account keeps your money locked until maturity. If you want to earn more from FD schemes, consider balancing between cumulative and non-cumulative FDs. While the cumulative FD will fetch you higher returns, a non-cumulative FD will give you cash at fixed intervals.
5. Pick the Best Financial Institution
The best financial institution is the one that offers high FD interest rates and top-class security. Housing finance companies like PNB Housing Finance provide returns of up to 6.95% per annum. Moreover, the FDs have received some of the best credit ratings from credit rating agencies like CRISIL and CARE. Hence, you can earn higher FD interest rates and grow your capital securely.
Maximising FD returns is easy when you have a plan. Once you have invested, try not to close the FD account prematurely since the financial institution may levy a fine on such withdrawals.