How to Maximize Benefits from an FD

Fixed deposits have always been one of the safest investment options. But a clear understanding of everything FD schemes offer can really help you to get more benefits from an investment.

Here are some of the things you need to know:

Choosing a Tenure

Banks and NBFCs offer fixed deposits investment schemes with a certain fixed tenure. This may vary from 7 days to as much as 10 years. Usually, the longer a tenure, the higher the interest rates that it offers. You can choose a tenure after taking various things into consideration, such as your income, finances need to cover regular expenses and the amount you can set aside to put in an FD.

If the FD is a considerable amount, and the interest from it meets an individual’s expenses, it can be taken for a maximum tenure.

Interest from an FD

The interest from an FD may be paid at fixed interval or according to time at which the investment matures. According to your need, you can decide on the interest to be payable in a month, a quarter, a year, or at the time of maturity.

But you may also choose to reinvest the interest paid, and thus compound your returns. Note that you have to make provision for this while investing in the FD.

Taxes on an FD

The interest from an FD is taxed if it exceeds INR 10,000 per annum. The amount of taxation depends on the tax slab in which a person falls. A person in a 20% tax slab will have a 20% tax on an interest that exceeds INR 10,000. But by submitting a 15 G/H form to the bank, a person can be exempted from this deduction.

It is also possible to get a tax saving by investing in a tax-saver FD. This can have a tenure from at least 5 years to a maximum 10-year duration.

Premature withdrawal of FDs

If you really need money, you can withdraw prematurely from a fixed deposit. But this comes at a certain cost. You can be required to pay a penalty besides also getting a lower rate of interest according to the tenure of a fixed deposit.

But another choice is taking a loan on the basis of an overdraft option. If you do this, you’re not required to pay a penalty or incur any lower rate of interest. However, this loan comes at a greater rate of interest than the interest paid by the FD.

Thus, there are various factors that affect your returns from a fixed deposit. Ensure you understand all the terms before proceeding with making an investment.