The Reserve Bank of India has slashed interest rates already this year and we are looking at the possibility of another interest rate cut in April. As interest rates fall, here are a few ways in which you can improve your returns from FDs.
Open fixed deposits account online
Some companies have already begun offering better yields for opening accounts online. This is because they could be saving on paper work and commissions. For example, if you open an account at Mahindra Finance online, you get an interest rate of 9 per cent, while in the case of physically opened deposits, the interest rate is only 8.75 per cent.
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. Other NBFCS may also follow in the footsteps of Mahindra Finance.
Look for small finance banks
Look for small finance banks as the interest rate from these banks is one of the highest across categories. For example, Jana Small Finance Bank offers an interest rate of as high as 9 per cent, which is also compounded every quarter. Many may want to know whether opening an FD through these banks is safe.
Small finance banks in the country are regulated by the RBI and hence can be considered as reasonably safe. However, it would be prudent to invest small sums and do your own research.
While SBI offers you a maximum interest of 7.5 per cent, small finance banks can offer you interest rates ranging from 8.5 to 9.25 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.
Do not withdraw your FDs
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.
Apply for cumulative
Try and apply for cumulative deposits, as they tend to compound interest. Banks compound interest every quarter, while company Fixed Deposits do not. The law of compounding will ensure higher yields in the future. Some companies like KTDFC compound interest every month, so your yields tend to be very high. However, do also look at other aspects like safety, liquidity etc.