Interest rates on fixed deposits have fallen to record lows, barely keeping up with inflation. Nonetheless, bank fixed deposits are the favoured means of keeping cash for many people. If you’re considering creating a bank FD account, here are a few pointers to help you get the most out of your money.
1. Special FD Rates
Bank FDs have a fixed rate of interest for a specific time period, which can be anything from seven days to 10 years. Banks will occasionally provide a special tenure, such as 444 days, 650 days, or 700 days, with a slightly higher return. Multiple interest rate options, such as monthly, quarterly, half-yearly, or cumulative interest rates, are also accessible, depending on the necessity.
2. Opt for Senior citizen FD
Senior citizens earn an additional 0.5 percent interest rate on all FDs. There are also specific bank fixed deposit (FD) programmes that pay a higher rate of interest than the current rate of 0.50 percent on deposits made by older people if the FD is for 5 years or longer.
3. Go for Sweep-in FD
Savings accounts at most major banks provide relatively low interest rates. You can opt for a sweep-in deposit, which converts any money in your savings account that surpasses a certain threshold limit into an FD right away. In effect, you get a higher rate of interest than you would if you saved your money in a savings account. Furthermore, if your savings account is insufficient to meet your needs, you may quickly withdraw funds from your FD without having to break it.
4. Consider tax saving FD
You may store money in a bank FD for five years and save money on taxes at the same time. A 5-year tax-saving fixed deposit (FD) qualifies for tax benefits under Section 80C of the Income Tax Act. For tax benefits in a single financial year, a maximum of Rs 1.5 lakh can be put in a 5-year tax-saving bank fixed deposit. Such deposits do not allow partial or premature withdrawals due to the 5-year lock-in term, but you may choose to receive interest payments monthly or quarterly. Furthermore, such deposits preclude any form of borrowing.
5. Do Laddering
Finally, invest your money in your FD over a period of several years. Over a longer time horizon, the trend is negative, although predicting short-term changes is impossible for anyone. To decrease reinvestment risk and ensure liquidity, utilise the “laddering” approach while investing in FDs. When the shortest term FD expires, reinvest for the longest time possible, according on one’s needs.