How to Raise Your Savings With Fixed Deposits?

Saving money regularly is crucial for financial security. One effective way to boost your savings is through Fixed Deposits (FDs). FDs are low-risk savings tools offered by banks and NBFCs in India. They provide a fixed rate of interest over a specified period, known as the tenor. Here’s how you can raise your savings with FDs.

How to Maximise Your Savings With Fixed Deposits

1. Compare Interest Rates: Interest rates on FDs vary across banks and NBFCs. Compare the rates offered by different issuers to find the most favourable one. Websites of banks and NBFCs can provide updated information on FD interest rates.
2. Choose the Right Tenor: Select a tenor that suits your financial goals. Short-term FDs are useful for meeting short-term goals. Conversely, long-term FDs can help with long-term financial planning.
3. Consider Laddering: Laddering involves spreading your investment across multiple FDs with different tenors. This strategy provides liquidity at regular intervals and reduces interest rate risk. For example, instead of investing ₹1 Lakh in a single FD, you could invest ₹25,000 each in four FDs with tenors of 1, 2, 3, and 4 years.
4. Reinvest the Interest: Many FD issuers offer the option to reinvest the interest on FDs. This can help you earn compound interest, further boosting your savings.
5. Choose Cumulative FDs: In these FDs, the interest is compounded quarterly or annually. It is then paid at maturity. This can result in higher returns compared to non-cumulative FDs. In these FDs, the interest is paid out regularly.
6. Utilise Tax-saving FDs: Investing in tax-saving FDs can help you save on taxes. This can be done under Section 80C of the Income Tax Act, 1961. The maximum deduction allowed is ₹1.5 Lakhs per year.

Benefits of Fixed Deposits

1. Higher Interest Rates: FDs offer higher interest rates compared to savings accounts. This makes them a better choice for growing your savings.
2. Guaranteed Returns: The returns on FDs are guaranteed. Once you lock in an interest rate, it remains fixed for the entire tenor. This helps provide a stable and predictable income.
3. Flexible Tenors: FDs come with flexible tenors ranging from 7 days to 10 years. You can choose a tenor that is in alignment with your financial goals.
4. Safety: FDs issued by banks and NBFCs are considered low-risk investments. They are secured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This is up to ₹5 Lakhs per depositor per bank.
5. Tax Benefits: Some FDs offer tax benefits under Section 80C of the Income Tax Act, 1961. These tax-saving fixed deposits have a lock-in period of 5 years. This means you can save on taxes while growing your savings.

Steps to Open a Fixed Deposit

1. Choose the Issuer: Select an issuer that offers competitive interest rates. Also, ensure that they provide reliable customer service.
2. Decide the Tenor and Amount: Determine the tenor and the amount you wish to deposit.
3. Fill Out the Application: You can apply for an FD online or at a branch. Fill out the required forms and submit the necessary documents. This can include your identity and address proof.
4. Fund the Deposit: Transfer the deposit amount to the bank or NBFC. Upon receipt, they will issue an FD certificate detailing the terms of the deposit.
5. Receive Confirmation: After the deposit, you will receive a confirmation from the issuer. This will be along with details of the interest rate, tenor, and maturity date.

Monitoring and Managing Your FDs

1. Track Interest Rates: Keep an eye on interest rate trends. If rates increase, consider investing in new FDs to take advantage of higher returns.
2. Renew or Withdraw: Upon maturity, you can choose to renew the FD at the prevailing interest rate. Alternatively, you can withdraw the amount. Plan this based on your financial needs and market conditions.
3. Premature Withdrawal: You can opt to withdraw the funds before maturity. However, be aware that this usually incurs a penalty, reducing your overall returns.
4. Use Online Tools: Many banks and NBFCs offer online tools to manage your FDs. These allow you to track your investments, calculate interest, and plan for maturity.

Example of FD Investment Strategies

Suppose you have ₹5 Lakhs to invest. Instead of putting all the money in one FD, consider splitting it into different tenors. For instance, you could invest ₹1 Lakh each in five FDs with tenors of 1, 2, 3, 4, and 5 years. This way, you’ll have an FD maturing every year, providing regular liquidity. You can reinvest the matured amount in a new FD at the prevailing interest rate. This can help you potentially earn higher returns over time.

Advantages of Laddering

Laddering not only provides liquidity but also mitigates interest rate risk. If interest rates rise, you can benefit by reinvesting the matured FDs at higher rates. Conversely, if rates fall, only a portion of your investment will be affected.

Reinvestment Plans

Many banks and NBFCs offer reinvestment plans. Here, the interest earned on an FD is reinvested into a new FD. This creates a compounding effect, leading to higher returns over time. If you opt for such a plan, make sure to read the terms and conditions carefully.

Tax-saving Fixed Deposits

Tax-saving fixed deposits offer dual benefits. They help in saving taxes and also provide assured returns. With a lock-in period of 5 years, these FDs are a good option for long-term savings. The maximum amount eligible for tax deduction under Section 80C is ₹1.5 Lakhs per year. However, the interest earned on these FDs is taxable.

Fixed Deposits are a reliable way to grow your savings. Choose the right tenor, compare interest rates, and utilise strategies like laddering. By doing so, you can maximise your returns. Additionally, tax-saving fixed deposits can provide both growth and tax benefits. Always stay informed about the latest interest rates and terms from reputable banks and NBFCs to make the most of your investments.

For updated interest rates and more, you can visit marketplaces like Bajaj Markets and official bank websites.