For the last few years, yields from fixed deposits or various other debt instruments has been very low. This is because inflation has eased and the country's central bank has stopped raising interest rates. In fact, the last couple of years has only seen interest rates being cut.
Look for quarterly compounding of interest rates
Many company fixed deposits in India, compound interest rates every year. On the other hand banks compound interest rates every quarter. This means your yields will be better on bank deposits.
So, if Bank A is offering interest rate of 7 per cent over 5 years (quarterly compounding) and Company A is offering interest rate of 7.25 per cent over 5 years (annual compounding), your returns could be higher in the bank deposit over the 5 years period.
Split the deposit in spouse's name
In case you are already having salary income and paying tax, it makes sense to place the deposit in the name of your spouse, in case she is not having any other income.
This will ensure that you reduce tax liability and fetch maximum returns from fixed deposits. This is very important to ensure good post tax returns.
Submit form 15G and 15H
Form 15g is meant for those not having taxable income and who do not wish that TDS is cut from their deposits.
Let us cite an example. An individual pays taxes when his income is over Rs 2.5 lakhs. If your income is below this limit, you should submit form 15g, telling the bank not to cut TDS on your deposit.
Banks generally cut TDS when the interest income of a person crosses Rs 10,000. In the case of company deposits, this amount is Rs 5,000.
Cumulative deposits provide better yields
If you are retired and require regular income, it is good you go for regular interest paying deposits. Otherwise, it is better you opt for the cumulative deposits. This is because cumulative deposits tend to almost always offer you better yields.
Apply for the duration period
It is very important that you apply for the right period. As an example, if a 1-year deposit fetches you an interest rate of 7 per cent, a 2-year deposit 7.25 per cent and a 3-year deposit 7 per cent, you should opt for the 2-year deposit.
It is extremely important to compare deposits online, before you invest. In some cases company deposits offer you better interest rate then bank deposits. So, please compare online before investing. However, company deposits may not always be safe.