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How to increase returns from fixed deposits?


Fixed deposits unlike equities and gold always offer predetermined returns. However, there are ways and means to increase your returns from fixed deposits. Before you zero in on any particular fixed deposit or fixed interest bearing instruments you should keep in mind the following:


How to increase returns from fixed deposits?

Important to look at yields and not interest rates

Yields are the most important parameter when you look at returns and not interest rate. A company fixed deposit could offer you an interest rate of 9 per cent with compounding done every six months.

However, a bank fixed deposit that offers a similar interest rate, but compounds the same every quarter, would definitely give a higher yield. So look at yields and not interest rates.

Look beyond bank fixed deposits

Non Convertible Debentures, Company Fixed Deposits and Tax Free Bonds could offer higher yields than bank fixed deposits. In some cases these instruments are very secure.

Also, if you are in the highest tax bracket your post tax yield will work much higher if you invest in tax free bonds. Read more on such instruments here

Do not forget to submit form 15g/15h

If you believe that your interest income is unlikely to be over and above the limit needed for paying income tax, please submit form 15G or 15H as the case maybe.

This will ensure that no TDS is deducted on your fixed deposit. Read more on these forms here

Do not forget compounding

It's better to go for instruments that compound every quarter rather than every year or half yearly as this would increase your overall returns. Read more on how compounding works here

Do not withdraw or break fixed deposits

In most cases if you break a fixed deposit before maturity there are chances that you would have to pay a penalty and your returns would be lower.


So, as far as is possible avoid breaking your deposit before its maturity.

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