Making your FDs sweat: A few tips

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Fixed deposit is one of the most secure and safe investment instruments. It gives guaranteed returns after a predetermined tenure. But often we miss a few things while parking our money in FDs. Money9 gives you a check list of how to get maximum benefits from your fixed deposits.

Compare rates

All public, private, and small finance banks offer fixed deposit ranging from 7 days to 10 years and above. Different banks offer different interest rates for the same tenure. Generally small finance banks offer better rate than private or PSBs.

Corporate FDs

The interest rates of bank fixed deposits are barely able to beat inflation. But, at the same time, the return on corporate FDs is relatively higher than bank FDs. In some cases, the FD rates offered by corporates are higher by about 3.5% for the same tenure. So sometimes it might be wiser to invest in corporate FDs.

Cumulative FD

A cumulative fixed deposit plan allows you to re-invest your interest and grow your corpus by using the compounding benefits. This is an ideal way to invest for those who don’t need a regular income from FDs. On the other hand, non-cumulative FDs pay the interest regularly and offer no compounding effect.

Right tenure

The tenure of an FD is the most important thing. If you put your money for 366 days instead of 365 days, then you may get 30-40 basis point more interest. Generally longer tenure gives you a higher interest rate. Any tax saving FD will offer you low interest rate.

Split into smaller FDs

Always try to split into small FDs, instead of a large one. Suppose if you invest Rs 1 lakh, then invest in small chunks of Rs 25,000 each. Try to invest in different banks or in different tenures. This will help you to get more return.

Get the maximum

If the interest earned on the FD is above the specified threshold of Rs 40,000 per annum, the TDS will have to be deducted as per the Income Tax Act. So, make sure you submit your Form 15G or Form 15H (for senior citizens) to avoid any types of deduction of TDS on your fixed deposit income.

Experts take

Fixed deposits constitute a good and safe investment option. Experts say FDs should form an integral part of one’s investment portfolio.

“Fixed deposits always give safe and secure return. So, it must be a part of everybody’s investment portfolio. But before opting for an FD one should keep some important things like tenure, interest rate, tax compliances in mind to get the maximum benefit from it,” said Nilotpal Banerjee, a personal finance expert.