Few pointers to help you make the most of bank fixed deposits

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Few pointers to help you make the most of bank fixed deposits
Bank fixed deposits boasted as the most safe investment avenue for conservative investor class, who do not wish to see their capital erode and instead seek some fixed return in a span of time, can bet on the instrument while taking note of the following few pointers for maximum gains from the investment.

1. For higher interest rates, do not fall prey to and invest in fixed deposits of cooperative banks as higher interest rate comes with an inherent risk. Default on fixed deposits maintained with a cooperative bank have been reported. So, as suggested as far as possible avoid FDs with cooperative bank and instead bet on fixed deposit schemes of scheduled bank.

2. In case you as a risk-averse investor class bets hugely on bank fixed deposit, make sure that you do not invest a large sum in one FD or in one particular bank. Maintaining bank FDs with different banks protects the investor against any likely default (remember chances of default are near negligible in case of bank FDs in general). Deposit Insurance and Credit Guarantee Scheme of India under which banks are insured guarantees capital protection of the investor. However, the most safe are the Public Sector Banks.

Plus, maintaining FDs across different tenure as well as of different amount instead of a single high value meets liquidity needs. All the same, through the strategy, investor can also avoid and not lose the interest 1. rate benefit in times of higher interest rates in the economy.

At, the same time, in case an investor needs to break the FD owing to some contingency, he or she can break the fixed deposit of the required sum and pay penalty for premature withdrawal on the lower amount.

3. For avoiding tax deduction at source on your fixed deposit interest income, you need to submit form 15G with the bank declaring that you do not have any taxable income. Senior citizens can submit form 15H for avoiding TDS on their fixed deposit proceeds. Know about ways to avoid TDS by bank on your FD interest income.

4. In case of contingency, by availing financing facility on the FD, investor can still earn higher returns on the FD with compounding benefits.

5. Special fixed deposits with a lock-in period of 5 years help to save tax as the same can be claimed for deduction under section 80C. But, remember interest earned on such fixed deposits is taxable.

6.  For higher returns you can also put your  hard earned money in highly safe company safe deposits such as those of Mahindra and Mahindra, Kerala Road Transport which is a government of Kerala undertaking. These company fixed deposits are highly safe and as good as a bank providing higher return on the capital.

Despite the assured high returns which bank fixed deposit generate over the term, in the current scenario it fails to beat the rate of inflation which is way above the average return of bank fixed deposit @ 9.0- 9.5%. And, seeking this government of India has come up with some novel fixed interest investment option such as CPI inflation-indexed bonds that would provide a fixed return of 1.5 per annum over and above the rate of inflation. So, if the CPI inflation stands @ 10%, investor shall realize a return of 11.5% per annum compounded half-yearly.


Story first published: Friday, February 28, 2014, 12:56 [IST]
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