5 Ways to Maximize Returns from Fixed Deposits| North Loop Official Blog
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06 Aug 2020

5 Ways to Maximize Returns from Fixed Deposits

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Investing in fixed deposits has always been one of the most preferred choices as it offers stability with high returns. The safety of funds, guaranteed returns and ease of investment make FDs an attractive option for those of you who are risk-averse investors. Moreover, if you plan your investment strategy well and follow a few easy steps, you can boost your steady returns and maximise your earnings by investing in fixed deposits. We have created a list of the steps you can take to achieve that –

Open fixed deposits account online –

While most banks offer an interest rate ranging from 4.5-7%, if you choose to open FD online with a digital banking platform like North Loop, you can enjoy an interest rate as high as 7.5%. Moreover, opening an account on this platform is significantly faster than other offline options and equally safe. You can save a lot of your time and effort as well as enjoy many additional benefits.

Get a zero-balance, no-fee NRE/NRO account with North Loop in 5 minutes

Apply for cumulative deposits –

Cumulative FDs are suitable for creating a deposit over a long period as they enable you to grow your wealth over the tenor of the deposit due to extended benefits of compounding. In a cumulative FD, the interest accrued on your deposit amount gets reinvested, and the yield gets added to the principal amount.

Therefore, there is no fixed interest, and the interest rate gets compounded every quarter or year and payable at the time of maturity with the principal. While non-cumulative FDs are suitable for those of you looking to invest a lump-sum amount and earn a regular payout every month, cumulative FDs are best suited if you do not need a regular income payout and want to maximise returns on your FD investment.

Plan your investment strategy –

Investing in fixed deposits will always ensure you safe and inflation-beating returns. However, to reap the maximum benefits from your deposit, you should follow a strategy like laddering your FDs across varying tenors for increased liquidity. FD laddering is an investment technique in which instead of investing your entire corpus in a single FD, you can divide your fund equally and invest in multiple FD instruments with different maturities. By creating multiple smaller deposits and locking into high FD interest rates, all of which mature at different points in time, you can receive regular income payouts at shorter intervals and also avoid the need of premature FD withdrawals which come with penalties.

For example, if you want to invest Rs.5 lakh and follow the FD laddering technique, you can break your corpus in five equal parts but with different maturities. That means you can invest Rs.1 lakh each in 1-5 year FDs and reinvest the fund when these FDs mature.

This also helps in creating an investment loop because one of your FDs will mature every year and give you more liquidity to meet your financial requirements and also prevent you from disturbing your entire investment corpus in the face of a financial emergency. Moreover, you can devise your own FD laddering strategy and allocate your funds based on your personal financial goals and requirements.

File your returns on time –

Interest income on fixed deposit is taxable at the slab rates applicable to your total income in a financial year. However, filing your returns on time and being aware of the latest modifications in the tax laws for FD returns can be beneficial to you in many ways. For example, as per Section 194A of the Income Tax Act, 1961, banks and financial institutions are instructed to deduct TDS (Tax Deducted on Source) on all interest payments that exceed Rs.10,000 in any Financial Year. That means if you receive interest income beyond that threshold limit, your bank automatically deducts tax on your behalf and pays it to the government.

However, if your net taxable income after claiming all deductions is less than the basic exemption limit and you have at least one active FD at the time of filing, you can submit Form 15G to avoid the deduction of tax. (Form 15G can be submitted by you if you are below 60 years of age during the year as mentioned in the form and Form 15H if you are 60 years and above. If you are an NRI, you are ineligible to submit Form 15G or 15H).

Create investments on behalf of family members –

You can capitalise on increased returns on fixed deposits if you invest on behalf of your parents or grandparents as FD interest rates offered by banks for senior citizens are usually higher.

Also, under section 80TTB of the Income Tax Act, a senior citizen can earn a tax-free interest of Rs.50,000 from various fixed deposits in a financial year. Thus, investing on behalf of your family members can help you earn higher interest incomes.

Moreover, with an increase in the limit of deposit insurance from Rs.1 lakh to Rs.5 lakh as per the Budget 2020 proposals, you can create multiple deposits on behalf of various family members and have your bank FDs insured up to Rs.5 lakh under Deposit Insurance and Credit Guarantee Corporation (DICGC). This deposit insurance is applicable as an aggregate of your deposit across branches of the same bank. Deposits spread across different banks are insured separately.

Now that you know how to maximise your FD returns using these easy steps, you should start by identifying a platform that offers you the highest FD interest rate. With North Loop, you can get an interest rate of 7.5% and other convenient features and benefits.
Moreover, if you are an NRI you can open an NRI fixed deposit account and enjoy high returns along-with claiming DTAA (Double Tax Avoidance Agreements) benefits in several countries.

To know more about other investment options, click here.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.