Every human being wishes to gain more. Some may dream of more assets. Others may want more savings for the future. Still, some may desire huge tax deductions. Few may want better returns. And the investors of a fixed deposit may be looking forward to earning higher interest. Who does not wish to earn a high rate of interest? This will ultimately generate huge returns for investors. So, here we deal in detail of how to earn high interest on fixed deposits.
A Fixed Deposit is an investment policy just like any other policy that is availed by the investors. This investment provides the necessary financial stability required by any investor. FD is better than investing in a savings account. This statement has been agreed upon by 95% of the Indians. The applicants can invest their savings in an FD for a fixed interest rate. Such investments are parked in the FD for a fixed tenure that may range from few days to several years together.
So, let us learn more about fixed deposits. Through this article, I will explain the different types of fixed deposits. Then I will explain some of the prominent features and benefits of having an FD. But, we would start with the different ways to earn high interest on fixed deposits. In the end, some frequently asked questions will also be discussed.
How To Earn High Interest On Fixed Deposits?
Here, we will study different ways to earn high profits and interest in investing in Fixed deposits.
1. Check The Interest Rates Offered By Different Banks
2. Find Out How Interest Is Calculated
i. The interest rate may be calculated quarterly. This is done 4 times a year.
ii. The interest rate may be calculated half-yearly. This is done 2 times a year.
iii. The interest rate may be calculated yearly. This is done once a year.
Now suppose there are two banks A and B. Bank A offers fixed deposits with an interest of 8% per annum. The tenure of this deposit is five years and the interest is calculated every quarter. Now, bank B also offers an interest of 8% on the fixed deposits for the same tenure.
3. Savings On TDS
The benefits of having several accounts will be helpful in times of crisis. If the investors need to withdraw the FD, then they can do so from any one of the accounts. This will prevent the breaking of the entire FD.
4. Reinvest The Interest
5. An Overdraft Facility Can Prevent The Breaking Of FD
6. Avoid Premature Withdrawals
7. Invest In Tax-Saving Fixed Deposits
8. Open Fixed Deposits In Parents’ Names
9. Split The Money In Different Banks
10. Invest In Multiple Fixed Deposits With Different Tenures
Salient Features And Benefits Of Investing In Fixed Deposit
The investors of fixed deposits are likely to enjoy several benefits.
Some of the features and benefits of FDs are as follows.
1. Returns On Investments
The returns on this investment are guaranteed. The interest rate to be earned is fixed at the time of investing. The interest earned in the investment is free from risk. This is possible because interest is not influenced by the market instead it is fixed.
2. The Investment Is Free From Risk
As mentioned earlier, the interest is independent of the market values. Hence, the overall investment is not subjected to any market risk. Thus, money is 100% safe. In case, the bank or non-banking financial company (NBFC) falls prey to liquidation then the Reserve Bank of India (RBI) aids the company. They provide compensation of Rs.5 lakh to every bank in distress. The principal amount and the interest earned are included in the deposit insurance.
The investment for fixed deposits is economical for individuals from every financial background. This is because the minimum amount for investment is Rs.100. But many of the top Indian banks have set the minimum investment amount to Rs.1,000.
4. The Tenure Is Flexible
The tenure for the investment of this scheme is fixed by the investors. They can either choose to keep their funds in a fixed deposit for a minimum of 7 days to a maximum of 10 years. As per the tenure selected by the investors, the interest rate differs. Tax-saving fixed deposit schemes with a tenure of 5 years can enable the investors to save on income tax. The tax deduction is offered under Section 80C of the Income Tax Act.
5. High Returns
The interest rate offered on fixed deposits is higher than that offered on a savings account. The interest rate in any savings account is 3% to 4% per annum. But the interest rate on fixed deposits can reach up to 9% per annum. The rate of interest differs for different banks. It depends on the tenure and the age of the investor. If the tenure is short generally 1 to 3 years then the interest rate will be higher in this case. If the applicant is a senior citizen then he can avail of a 0.5% higher rate of interest.
6. Loan Against Fixed Deposit
The loan facility can be availed by the investors on their fixed deposit investment. The loans offered to the investor can value up to 90% of the amount invested in the fixed deposit. This implies that if an individual has invested Rs.20 lakh then he can avail of a loan worth Rs. 18 lakh. This is a boon for individuals looking for a personal loan with a high-interest rate. If they already have an FD then they can apply for a loan.
7. Credit Card Against Fixed Deposit
The investors of fixed deposit can also avail of a credit card. However, not all banks offer this facility.
8. Premature Withdrawal
Even after the tenure for a fixed deposit is set, the investors have the privilege to withdraw the investment before the end of the term. But those who wish to withdraw their funds before maturity have to pay a penalty. The penalty charged is 1-2% of the withdrawn amount.
Types Of Fixed Deposits
The fixed deposits are categorized into several types. The applicants should be aware of these various deposits. So, they avail of the right plan to assist their financial requirements.
1. Corporate Fixed Deposits
There is a type of fixed deposit offered by companies. These may be companies that an individual is working for. So, he can directly apply for a fixed deposit through his company. Investment in this company can generate high returns to investors.
2. Standard Fixed Deposits
These types of FDs are basic investment plans. Here the investor makes a fixed investment. Once the fixed deposit matures, the investor will receive the principal amount back. This is accompanied by the interest earned during the entire duration of the scheme.
3. Senior-Citizen Fixed Deposit
This scheme is also open to senior citizens above 60 years. As senior citizens, there are several benefits in store for them. The tenure for this scheme is flexible. The interest earned by the investors of this age group more than that earned by standard schemes.
4. Tax-Saving Fixed Deposit
There are specific fixed deposits that enable investors to save taxes. These are the tax-saving fixed deposits. But there are constraints to be eligible for the tax deductions. For instance, the minimum investment should be Rs.15 lakh per year. This FD should have a tenure of 5 years.
5. Cumulative Fixed Deposit
This type if fixed deposits allow investors to generate a considerable corpus. In this case, the interest is compounded yearly, half-yearly, or quarterly. But the amount is paid only after the maturity of the scheme.
6. Non-Cumulative Fixed Deposit
In this scheme, the interest is paid out either monthly, quarterly, or half-yearly. This is best suited for pensioners looking for a stable source of income.
7. Flexi Fixed Deposits
In this type of fixed deposit, the savings account is connected to the fixed deposit. Thus, the deposit moves from a savings account to a fixed deposit and vice-versa. High-interest rates and liquidity are achieved through this category of fixed deposits.
8. NRO Fixed Deposit Account
The Non-Residents of India also have the opportunity to invest in fixed deposits. The NRO account is reserved for them. The interest earned through this account is returned to the investors upon maturity. But the principal amount is not. Only a certain limit of the principal amount will be returned after maturity.
9. NRE Fixed Deposit Account
This account is also for the NRIs. They can invest their income in this account. After maturity, the interest earned and the principal amount deposited will be repatriable.
Related Frequently Asked Questions
1. What is the least duration for investment in fixed deposits?
The tenure varies from one bank to another. But the least tenure offered by most of the banks is 7 days.
2. What is the amount of loan offered against fixed deposits?
The investors of fixed deposits have the privilege to avail of loans. The amount of loan offered if 70% to 90% of the funds accumulated in the FD.
3. How much are the charges for the premature withdrawal of fixed deposits?
The penalty charged by the banks for the premature withdrawal of fixed deposits is 1% of the interest rate agreed by the investors on the fixed deposits.
4. What is the eligibility criteria for availing of TDS on fixed deposits?
The fixed deposits are eligible for the deduction of TDS. This is only when the interest earned on the deposits is less than Rs.40,000. If the interest earned exceeds this limit then TDS is charged. For senior citizens, the limit is Rs.50,000.
5. How to avail of the TDS exemption?
Investors can avail of the TDS exemption by submitting Form 15G. The senior citizens need to submit Form 15H.
6. What is the age criteria for opening a fixed deposit account?
The fixed deposits can be opened in the name of children between 1 to 15 years. But the parents or guardians should be co-applicants in such cases.
7. Who are eligible to invest in a fixed deposit scheme?
Every Indian resident including the Hindu Undivided Families (HUF), public and private companies are eligible to open a fixed deposit account.
8. What is the minimum amount required to open a fixed deposit account?
The minimum amount required to deposit in a fixed deposit account is Rs.1,000. But for a tax-saving fixed deposit, the minimum amount required is not less than Rs.100.
9. Do the investors need to submit their PAN card to open a fixed deposit account?
Yes, every investor should necessarily procure a PAN card. While opening a fixed deposit account. In case the investor is unable to submit the PAN card then he can fill Form 60/61.
10. Small finance banks are safe mediums to open a fixed deposit?
Yes, these banks are regulated by the Reserve Bank of India.
Fixed deposits are a boon to the investors. Sometimes investors do not wish to risk their existing funds. Mutual funds and stocks are influenced by the market. This makes investing in these schemes risky. Fixed deposits are the safest means of earning huge returns.
Some may prefer investing in a savings account for safety purposes. But the security offed in fixed deposits is also the same. And the interest earned through fixed deposits is much higher than the savings account. By investing in fixed deposits there are several benefits that investors can enjoy.
We have just discussed the various ways to earn high interest on fixed deposits. This can be achieved by adopting various methods. As investors, we must have the basic idea behind every financial scheme. Once we are aware of the working then we can improvise the way we invest. Fixed deposits are dynamic. They have a lot of features. Reinvesting is a process that involves risk but the investor may get higher returns. Nothing is certain but everything is worth a try.