Look at company fixed deposits

When it comes to fixed deposits, investors should weigh options. FDs does not mean only bank fixed deposits, but, also includes company deposits. Now, let us cite some examples. If you invest in a KTDFC Fixed deposit (backed by government of Kerala), it gives you an interest rate of 8.50 per cent, while a deposit in State Bank of India, could fetch you only 6 per cent on FDs.

So, there is a huge 2.5 per cent differential in the interest rate, between the two. So, KTDFC gives you almost 40 per cent higher interest rates. The deposits are backed by the government of Kerala and are hence safe. There are many other company deposits like Bajaj Finance (8.05 per cent interest rate), Mahindra Finance etc., which offer you much superior interest rates than banks.

Look at yields and not interest rates

Always look for yields and not interest rates. When you invest in a deposit (banks or company deposits) either they compound the interest rate every quarter, half yearly or even yearly.

Banks compound the interest rate every quarter which improves your yield. What is this compounding? Let us say that you place a fixed deposit at 10% interest on Rs 10,000. Now, this means you get Rs 1,000 by the end of the year and Rs 250 every quarter. Now, banks will add the Rs 250 interest every quarter along with the Rs 10,000 and give you interest on Rs 10,250 after every quarter, instead of adding the interest after 6 months or a year. This improves your returns on the deposits.

Submit form 15G and 15H

You have to make sure that you submit your form 15G and 15H, if you want to improve your returns from FDs.

If you are not a senior citizen and your income is less than the threshold limit of Rs 2.5 lakhs, you can submit form 15G. On the other hand, if you are a senior citizen and your income is not within the taxable limit, you can  submit form 15H.

Go for multiple FDs

If you do not want tax to be deducted at source, go for multiple FDs. For example, if the interest income crosses Rs 10,000, banks will deduct a TDS.

On the other hand, if your interest income crosses Rs 5,000 in company deposits they will deduct a TDS. So, if you are planning to place a bank FD for say Rs 1 lakh at 10% interest, it would be advisable to place it in two separate FDs, where there is no TDS, because, the interest would not cross the threshold limit of Rs 10,000 in the case of bank FDs.

Place deposits in the name of spouse if no taxable income

If you have taxable income and the spouse does not, it makes sense to place the deposits in the name of the spouse. This way you would save on taxes.This is because interest from fixed deposits has to be added to the total income and your tax liability only increases.

A list of good FDs

At the moment banks do not offer very good interest rates and the best choices would be the company FDs. KTDFC, as we mentioned earlier offers an interest rate of 8.50 per cent and is the best, if you are looking for higher interest rates. Other good FDs are Bajaj Finance, Mahindra and Mahindra etc.

You can check all bank FD interest rates here