When an Indian citizen thinks about risk-free investment, they choose fixed deposits. Fixed deposits do not carry the risks associated with the stock market. Moreover, they are one hundred per cent liquid, and investors can close the account and withdraw the amount any time they want to. But, are you getting the best returns from your fixed deposit investments? If you have stopped to think, then read this article, as we give you an overview of the things you need to do to increase the returns from your fixed deposit investments.
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Four Ways You Can Get Higher Returns From a Fixed Deposit Account
Look Beyond Banks – Open a Corporate Fixed Deposit Account
At present, banks have more cash in their coffers than they need to maintain a healthy balance sheet. As the demand for loans has declined, banks have no other option left than to reduce fixed deposit interest rates. In contrast, housing finance companies have witnessed a spurt in demand for housing loans, and they need money to cater to the growing needs of borrowers. Hence, they are offering attractive rates of interest on all fixed deposits. Moreover, senior citizens can get an additional 0.25% interest rate every year on fixed deposits.
Discover the Best Financial Institution
In the age of the internet, finding the best financial institution is not challenging. You can check the websites of financial institutions offering fixed deposits and identify the one offering the best rates. However, you should also consider the safety of your investment and the ease of application while selecting an institution. The best companies get CRISIL FAA+ or CARE AA rating and offer doorstep service for all fixed deposit customers. Also, check if senior citizen interest rate are more than the standard rates or not before investing.
Always Prefer Cumulative Fixed Deposits
While an ideal portfolio consists of cumulative and non-cumulative fixed deposits, you should always keep more cumulative deposits in your portfolio to maximise the returns. For example, while a non-cumulative deposit pays an annual interest of 6.70%, the non-cumulative mode fetches a 9.13% yield to maturity. Hence, when you stay invested for ten years, the compounding of interest can generate much higher returns than usual. It is good to remember that senior citizen interest rate is around 0.25% higher than standard interest rates.
Invest Like a Ladder
If you are investing to fulfil life’s various goals, it is better to invest in chunks than as a lump sum. You can divide the total amount you wish to invest in several equal-sized amounts and choose varying maturity. For example, if you want to invest INR 5,00,000, do not invest it in one fixed deposit. Instead, divide it into ten fixed deposits of INR 50,000 each, and choose maturity terms between one and ten years. Hence, every year, you will get at least INR 50,000 plus the accumulated interest to take care of your financial goals.
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Besides higher senior citizen interest rates, a fixed deposit account offers you several benefits like no TDS deduction for an interest income of up to INR 5,000, liquidity, loan against fixed deposit, and risk-free capital appreciation. However, try to avoid premature cancellation of fixed deposit, which will automatically reduce the effective rate of interest.