5 Best Ways to Expand Your Wealth through Fixed Deposits

5 Best Ways to Expand Your Wealth through Fixed Deposits

Investing in in a fixed deposit (FD) account is a viable option for many considering it gives guaranteed returns at minimal risk. You can earn more through an FD than a regular savings account over a fixed tenure with preferential rates for senior citizens.

However, this year, FDs seem to have taken a hit after a slew of rate cuts imposed by Reserve Bank of India (RBI) forced most financial institutions to bring down their interest rates. But that doesn’t mean you opt out from investing in FDs. However, a little knowledge about the art of investing in such accounts may help you enjoy higher returns. Here are a few pointers that you may consider while investing in fixed deposits.

1. Go for shorter tenures

Considering the current scenario, it seems that it will take some time for RBI before reversing the rate-cut cycle and increasing the rates once again. So, if you are looking to earn more within a short span of time, it’s better to go for short-term deposits. For instance, State Bank of India is currently offering an interest rate of 6.70% on deposits ranging from 1 year to less than 2 years. The rates offered by the same bank for tenures ranging from 3 years to 10 years is 6.25%. Shorter tenures will also help minimise the risk of losing out on reinvesting at the existing rate.

So, going by the current situation, go for a short-term deposit and enjoy better returns over a fixed tenure.

2. Premature withdrawals call for a penalty

There’s a reason why it’s important to go for a plausible tenure. For example, let’s say you have opted for a 5-year tenure. However, due to an emergency, you decide to withdraw the money after 2 years. Not only will you be automatically entitled to get the 1-year FD interest rates instead of the 10-year tenure rate, the financial institution may also impose a penalty for breaking your FD before the stipulated time.

So, to make sure that you don’t lose out much on the returns bit, it’s best not to break your FD before the maturity period. For any kind of financial emergency, use your emergency fund or savings to overcome the crunch period.

3. Investing in tax-saving FDs

Investing in a tax-saving FD lets you enjoy tax exemption under Section 80C of Income Tax Act, 1961. However, note that the interest earned on such FDs is taxable, but you can always claim a deduction on the amount invested. Tax-saving FDs usually come with a maximum tenure of 5 years.

4. Spread your investments

The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures or safeguards deposits of up to Rs.1 lakh per depositor in a bank (for both the principal amount and interest). So, if you have Rs.4 lakh to invest, spread it across 3-4 banks to safeguard your money in the best way possible. Also, during any financial emergency, you don’t have to break the entire deposit. Even if you break one, the amount invested in the other three FD accounts will continue to grow.

5. Choose FDs with reinvestment options

A fixed deposit that comes with a reinvestment option lets you enjoy interest not only on the principal amount, but also on the interest earned. Use an FD calculator to see how much you can earn through compound interest within a specific period of time.

Fixed deposits, if utilised wisely, can help secure your future. Though most banks have cut FD interest rates, it still is one of the preferred investment channels among most salaried and self-employed individuals. So, look for the best fixed deposit product on offer in the market, put your money to work, and see the amount grow over the course of time.

About Naisha Patel

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I am Naisha Patel, a professional finance writer specializing in personal finance. I have been working in the finance sector for a long time. All the people seeking financial guidance are in different stages of life. I love to explore every possible angle of personal finance and simplify things for the common people.

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