Interest rates are falling and you must ensure that you get maximum from your fixed deposits or Fds. If you are risk averse investor, you would look at various options to make more money from other investments like shares. However, if you have to stick to FDs, here are some strategies whereby you can get higher returns.
Open fixed deposits account online
You do not get extra interest by opening an account online. What you do get is an option to open at a bank which offers a higher interest rate.
For example, if you open an account in KTDFC you get an interest rate of 8.25 per cent on 12 and 24-month deposit, while in SBI it could fetch you an interest rate of at best 6.75.
While earlier individuals were reluctant to open in a bank which was far from their residence, this should not be the case now, given the ability of net banking and opening account online.
Look for company deposits
Look for company deposits that are AAA rated, as these deposits offer higher interest rates than bank deposits.
While SBI offers you a maximum interest of 6.75 per cent, a fixed deposit at Bajaj Finserv can offer you an interest rate of as much as 7.85 per cent, while in the case of the government of Kerala backed KTDFC, it could go as high as 8.25 per cent.
Submit form 15g and 15h
If you see TDS being cut, submit form 15g and 15h, if you do not have taxable income.
This would ensure that tax is not cut and your return would improve. However, this has to be submitted only when your net income is below the threshold limit of Rs 2.5 lakhs.
The form is filled with the purpose of informing the authorities not to cut TDS, since your income is below the above mentioned limit.
Do not submit the form, if you are liable to pay tax.
Apply for cumulative deposits
Try and apply for cumulative deposits, as they tend to compound interest. Banks compound interest every quarter, while company Fds do not. The law of compounding will ensure higher yields in the future.
Some companies like KTDC compound interest every month, so your yields tend to be very high. However, do also look at other aspects like safety, liquidity etc.
Do not withdraw your deposits early
Remember you should not withdraw your fixed deposits early. There is a penalty that is levied. In most cases banks levy a penalty of 1 per cent for early withdrawal of money before maturity.
This means do not put a lumpsum in one single deposit, as you may need the money for emergency.
As an example, say you have placed a single deposit of Rs 10 lakhs and need about Rs 1 lakh for emergency. You would now have to break the entire deposit of Rs 10 lakhs and there would be charges for early withdrawal. However, if you had placed 10 deposits of Rs 1 lakh, you could have withdrawn just one deposit.
Place deposit in the name of parents
If your parents are senior citizens they might end-up getting an extra 0.50 per cent interest on fixed deposits. If they do not have taxable income, it makes sense to open Fds in your parents name.
However, if they are paying taxes and are in the high bracket, refrain from doing so.