Introduction on Fixed deposit
Fixed Deposit or FD for short has for long been the king of investment methods for the general masses. As the returns are fixed here, this type of investment is considered to be the safest. It is immune to the market fluctuations.
If you knew how FD works and you can optimize the returns from it, you would be tapping the full potential of it. Here we understand what Fixed Deposit interest rates is, and how you can reap the maximum profits from it.
What is FD?
You make an investment with a bank. This can be either a one-time investment or a recurring deposit amount. This amount is put in the bank for a fixed tenure, the duration of which can range from 7 days to 10 years. A compound interest then builds on this amount at an agreed rate of interest. Once the tenure gets over, you get the amount back along with the interest it earned.
This return amount of the Fixed Deposit is taxable. This amount can also be used as collateral to draw loans against it.
How to maximize the returns?
- Compare the different interest rates available in the income. The higher the rate, the better the returns.
- Choose cumulative FD rather than non-cumulative FD- In cumulative FD, the interest builds upon a cumulative amount since the interest is not paid to the investor until maturity period is over. So there is always a larger amount on which the interest for the next period is built.
- Annual Taxation- Different financial institutes have a different rule for tax deduction from the interest that is built on the fixed deposit. An institution which makes a yearly deduction of taxes from this interest will be a better choice since an amount needs to be in the account to earn interest and annual taxation allows just this.
- Deposit in your parents’ name- Depositing in the name of your parents, for their benefit, will give better returns. This is because the rate on the deposits that are in the name of senior citizens earn 0.5% more interest.
- Submit form 15G and 15H- These are the forms in case your income does not lie in the range of taxable income, and you thus want to avoid tax deduction on your amount of interest. If you are above 60 years of age, you can consider filling the form 15G. However, you should fill the form 15H if your income is less than 2.5 lakhs per annum.
- Renewing the amount- This means changing the fixed amount every short period of tenure. After the tenure is over, say, after a year, you can get the whole amount with interest. You can now invest this amount in the FD for another such tenure, and then go on repeating this over a period of time. This will maximize your interests.
Fixed deposit, the easily understandable form of investment, is quite a good investment since it is locked away from the daily ups and downs of the market. But like for any other thing in human use, here too, you should know how to get the most out of your fixed deposit. When you use these few simple tricks, you will be able to appreciate the Fixed Deposit scheme truly.
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