In the last couple of years, interest rates on bank deposits have fallen dramatically. This is because inflation has remained benign in the economy, leading to a drop in interest rates by the Reserve Bank of India. The country's central bank has dropped the repo rate by 125 basis points in 2015 and we have more cuts in 2016 that could be coming. It is therefore imperative to earn more money on your bank fixed deposit.
1) Open bank deposits online
Bank deposits can be opened online, so you really should not be held back and apply through a bank branch that is close and offers lower rate of interest.
Let us cite this with an example. If you have RBL giving you an interest rate of 9.25 on bank deposits for one year and SBI giving you only 7.75 per cent, you can opt for RBL even though it does not have a branch near your house. You can open an FD online.
This is true even if you do not have a saving account at RBL Ltd.
2) Do a thorough market research
You need to a thorough research before you invest to ensure that you earn more on bank deposit. For example, there are many portals that offer you a comparison of bank interest rates in India. However, sometimes these portals may not be updated. You can just get an indication of the interest rates and just check the bank portal for the actual interest rate.
3) Avoid tax on bank deposits
If you earn more than Rs 10,000 as interest income on your bank deposit, the bank will cut a tax deducted at source (TDS) on the deposit.
In such cases, if you want to avoid the same, you should open joint accounts. Let us cite this with an example. Let's say that you want to place a fixed deposit of Rs 2,00,000 at 8 per cent interest. Now, you will receive almost Rs 16,000 as interest and there would be TDS that becomes applicable. You can avoid this TDS by breaking the deposit of Rs 1 lakh each, in your and your spouse's name.
4) Go for cumulative scheme
You can opt for a cumulative scheme in a bank deposit. Banks compound interest every quarterly and hence your yield on the deposit can be far higher. This is one advantage of bank deposits.
5) Longer term tenures
Longer term tenures would be a good proposition, when interest rates are falling. For example, you can get almost 8 per cent today, but, we do not know what happens when interest rates fall. If you block your money for 1 year and when you go ahead and renew after one year, if the rates have fallen, you would lose.
It's important to remember that interest rates in the economy are falling and falling really fast. It is therefore important to invest wisely and get the maximum from fixed deposits. Also, go in for slightly longer term tenures, so you hedge against falling rates.
Also, in case of emergencies, do not break your fixed deposits, as there would be a penalty that would be levied. Moreover, it would be a major disadvantage, if you have invested at a very high interest rate. In that case, you can also avail of a loan against your fixed deposit, which is a better proposition.