Fixed deposit investments remain one of the safest investment instruments to get attractive returns on your investments. Along with providing safer and higher returns on your investments, it is also one of the popular investment tools among Indian people. It would not be wrong to say that a financial portfolio is incomplete without the fixed deposit investments.

 Here are some tips to maximise your returns from fixed deposit investments:

Don’t withdraw your funds prematurely: Without a doubt, the financial institutions provide higher interest rates on the fixed deposits for a longer tenure. Thus, because of the same reasons, a lot of people choose longer tenures for fixed deposit investments. However, this does not help in most of the cases as fixed deposits do not allow premature withdrawal of funds. So, in case of any requirement of funds, if you break your FD, banks would charge a penalty for premature withdrawal. The more appropriate option in such a scenario would be to avail a loan against your fixed deposit. It is better than a personal loan because the interest charged on loan against fixed deposit is 1-2% higher than FD rates, which are lower than the interest rates on a personal loan. Also, you can avail a loan against FD without breaking your FD.

Use a Ladder Investment Strategy: One of the ways to get higher returns on your fixed deposits is to invest in smaller and multiple FDs. This can help you to get tax benefits on your investments. As banks deduct TDS on interest payments if the interest earned from fixed deposits exceeds Rs. 10,000. Along with that, you can use a ladder investment strategy in which you have FD that have different dates of maturity. The advantage of using a ladder strategy is that you can have liquidity for your investments. Thus, you can not just avail the benefit of liquidity but higher interest rates on your deposits.

 Cumulative v/s Non-Cumulative Fixed Deposit Schemes: To get higher returns on your fixed deposits investments, you can choose cumulative fixed deposits. It is because the interest on cumulative fixed deposits is calculated using the compound method, which means the principal amount does not remain the same. For each time, the principal amount gets changed. However, the interest is paid at the end of tenure along with the maturity of fixed deposits. On the other hand, non-cumulative fixed deposits are preferred by investors who want a regular saving every month, such as pensioners. The principal amount is not reinvested in the case of these fixed deposits.

 Invest in Corporate Fixed Deposits with Higher Credit Ratings: While bank fixed deposits remain popular investment instruments, you can also consider corporate fixed deposits. It is because many corporate deposits offer higher returns on fixed deposits. However, while doing so, ensure that you choose a reputed fixed deposit instrument that has AAA credit ratings. Also, don’t forget to compare the FD rates of these deposits.

Saving taxes on your fixed deposits: If you want to save taxes on your fixed deposits, you can choose tax-saver FD over regular fixed deposits. Under Section 80 C of the Income Tax Act, you can get tax deductions up to Rs. 1.5 Lakhs on your investments. Before investing in a tax-saver FD, you should know that you cannot avail a loan against these fixed deposits. Also, the lock-in period of tax-saver fixed deposits is five years. Along with that if the annual income is below the taxable slab, you can submit Form 15 G. Senior Citizens in the same case can submit Form 15 H to get tax benefits.

Conclusion: These tips can help you to get higher benefits for your investments. Thus, before making a decision about fixed deposit investments never forget to compare FD rates of various banks, non-banking financial institutions and fixed deposits offered by corporates.

Edward Bertrand