Looks for yields and not interest rates

If a company fixed deposit offers you an interest rate of 9.5 per cent per annum and a bank deposit offers a similar rate, go for the bank deposit, because all banks compound interest quarterly, while several company deposits compound interest rate after 6 months. The maturity value on quarterly compounding is always higher. So, look for yield and not interest rates.

Do not look only at bank deposits

A good company deposit like that of Kerala Road Transport offers an interest rate of 10.5 per cent, while the best interest rate you can get from a govt bank at the moment is 9.3 per cent. On NCDs the interest rate is as high as 11 per cent. However, company deposits and NCDs come with an element of risk. It's prudent to take calculated risk and diversify into strong company fixed deposits.

Remember TDS can reduce your returns

If you are not liable to pay tax, make sure you submit your 15G/H form as the case maybe or else you could end up paying TDS. For bank deposits TDS is deducted if the interest amount exceeds Rs 10,000 in a financial year, while in the case of company fixed deposits it is Rs 5000. By submitting these forms you can improve returns from fixed deposits.

A penalty on early withdrawal

Do not withdraw the deposit before maturity or else you may end up losing as much as one per cent lowerof the contracted rate.

Look for quarterly compounding

Look for banks and companies that compound interest rate every quarter. Many company deposits compound interest half yearly or yearly, which lowers your returns.