Get the Highest FD Interest Rate Out of your Fixed Deposit Account

Fixed Deposits are a great way to earn income from your savings. They are one of the safest avenues to invest your money as the interest rate is fixed.

Why you should choose a FD account over other investment options?

• Easy to operate

• High liquidity

• Return on fixed deposits is guaranteed.

• You can use the investment as security with lenders

How to get the most out of your FD account?

Do your homework

Look through the different schemes available. Pick one based on the rate of interest they are providing, and the amount of tenure. FD interest rates are not going to be the same for different banks and different tenures.’

A bank that is calculating interest more often will fetch you more return on Fixed Deposits. The interest amount can be calculated on a quarterly, semi-annual, annual basis or on maturity, depending on the bank.

Let’s say two lenders offer you the same Term Deposit interest rates for the same tenure. However, the first one might calculate the interest on a semi-annual basis, whereas the second does this on an annual basis. You will get a higher return on Fixed Deposits if you select the first lender, since the interest is calculated more frequently.

Divide your money in different FD accounts

Tax Deducted at Source (TDS) will be deducted on your FD account at 10 per cent if the interest exceeds Rs.10,000 per financial year. Every bank has different procedures of deduction. Deduction can be made on a quarterly, semi-annual or an annual basis. The interest earned on your FD account will thus vary.

If TDS is deducted on a yearly basis, you will get a higher interest on your investments compared to TDS deducted on a quarterly or half-yearly basis. This is because of the fact that the interest is paid on a cumulative basis on FD accounts.

To avoid TDS, you can divide your money into multiple FD accounts of different banks or different branches of the same bank.

Reinvest your interest income

To get the highest rate of return on Fixed Deposits, you can opt to reinvest the interest amount. By doing so, the interest income will get added to your original amount, thus increasing the principal. Increase in principal amount will naturally lead to higher return on Fixed Deposits.

However, you can also choose to withdraw the interest amount. If you choose to withdraw, you will get same amount of interest every year till maturity.

Invest the return on mutual funds

If you want to get the highest return on Fixed Deposits, you should consider investing the interest income in a mutual fund with equity-related schemes.

You can expect a return of 16 - 20 percent income on the mutual funds, browsing through the past performances.

Combining these steps will result in an even greater return on Fixed Deposits. You do want to choose a bank that offers the highest rate of interest on Fixed Deposits. However, inflation and tax deductions can reduce your expected interest amount by a definable amount. To maximise the Term Deposit interest rates, it will be wise if you reinvest your interest amount instead of opting for withdrawal.

Do an extensive research on the different schemes and offers. Following these simple steps might lead to a drastic increase in the interest you can earn from your FD account. Wake up and implement these easy steps to earn an extra income.

Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India.