How to use the FD’s features to your advantage

Fixed deposits are some of the safest investment options in India. They guarantee returns without being amenable to market rate fluctuations. They are also easy to create and they are highly liquid in times of financial emergency.

Consider the ways to make the most of the FD features to your advantage:

• Get the FD with the highest rate of interest.

This is pure mathematics – the higher the rate of interest, the higher is the earning potential of the fixed deposit. Leading banks offer competitive rates of interest (7% and above) for longer tenure FDs (one year and more). Fixed deposits created for a few days or months will attract lower rate of interest. Use the online fixed deposit calculator to find out how much the interest rate will be basis the amount of deposit and its tenure.

• Create an account for a longer tenure.

As mentioned in the point above, the longer the tenure of the FD, the higher is the interest rate. However, some banks offer the highest rates of interest on tenures ranging from one year to five or six years, while interest rates may again taper off for tenures longer than six years. Check the bank’s interest rate schedules before you sign up. Also use the fixed deposit interest calculator to find out the impact of the interest on the overall earning on the deposit.

• Invest in tax saving FDs.

One of the best ways to maximise the earning on your FD is to ensure that your tax liability on it is reduced or eliminated. Do note that if the interest payable on the deposit exceeds Rs 10,000 then it is counted as income under current tax laws. However, you can bypass this eventuality by creating a five-year tax saving FD. There is no tax liability on this category of fixed deposit, while the longer tenure guarantees good appreciation. Use the fixed deposit interest calculator to find out the final earning on it.

• Create FDs of varying tenures – for different milestones.

This is a nifty trick to ensure that you have a handy fund of money ready for different milestones. You can create FDs of varying tenures using a large lump sum of money, or you can create FDs every few years with certain tenures. For example:

1. If you have Rs 5,00,000 at your disposal, you can break down the sum into three parts: two parts of Rs 2,00,000 and one of Rs 1,00,000. Create one fixed deposit of Rs 2,00,000 for three years, another Rs 2,00,000 for five years, and Rs 1,00,000 for two years. The different maturity periods will guarantee that you will have a large fund of money at hand at key moments in life.
2. If you wish to have money in your hands in two years, then later in five years and eight years, you can create an FD now for two years, a fresh deposit next year for 5 years and a last new one two years later for 8 years.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018