5 Ways to Maximize your Earnings with Fixed Deposit

Fixed Deposit is a safe way to save and grow money. Unlike market-linked schemes where returns are known only in hindsight, FD gives you a clear idea of your earnings from day one.

Better still, FD earnings can be maximized with fine-tuning. How? Let’s discuss.

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   Diversify it:

Suppose you have 10 lakhs of surplus funds to invest in. It’s better to diversify your investment across FDs and banks than to park it all in one account at one bank. That may sound strange, since a higher amount attracts higher fixed deposit rates, right? But there’s logic to it.

Contrary to popular perception, FD investment is not entirely safe, especially corporate deposits. However, bank FD is guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an offshoot of Reserve Bank of India. In a default scenario, you’ll get INR 1 lakh for each FD. Therefore, you enjoy increased safety with multiple FDs across banks.

With multiple FDs, savings come in the form of lower withdrawal penalties in case the FD has to be broken to meet urgent fund requirements. The rest of the money continues to grow as usual.

2. Prefer cumulative option:

The best-fixed deposit allows you to choose from cumulative and non-cumulative interest payout options. In a cumulative Fixed Deposit (FD), the interest is payable upon maturity only. Conversely, a non-cumulative FD pays you interest monthly, quarterly, half-yearly, or annually.

Typically, banks offer better rates on cumulative FDs vis-à-vis non-cumulative ones. Going for cumulative FDs makes sense to increase your interest earnings and build a corpus; unless, of course, you don’t need periodical income to meet your day to day expenses.

3. Get it renewed automatically:

Banks offer you auto renewal facility. Herein, your FD will be renewed for the same tenor at the same fixed deposit rates upon maturity. The renewed FD either includes your total proceeds (principal plus interest) or only principal. The renewal process is automatic, requiring no intervention. You only need to sign the auto-renewal clause at the time of account opening.

The facility not only ensures convenient banking but also hedges you against any loss of interest. Plus, the issuer might even provide an auto-renewal bonus on the base rate.

4. Longer tenors help:

FD offers you flexibility when it comes to choosing tenors. From 7 days to 5 years, you can opt for a tenor suiting your investment objectives. However, the thumb rule for the best-fixed deposit investment is to go for longer tenors. The longer the tenors, the higher your interest earnings will be – it’s as simple as that. Why? Well, the secret lies in the power of compounding.

Your FD investment attracts compound interest. The interest earnings tend to spike significantly when the money is parked for longer durations, preferably three years or more.

5. Open FD in parents name:

Opening an FD account in your parent’s name is more than just an act of kindness. It’s a smart ploy to boost your interest earnings. Banks offer up to .50% higher fixed deposit rates for senior citizens. However, the trick works best only if they lack taxable income.