Fixed Deposit or Term Deposit are the kind of financial instruments with which you can deposit or invest your funds for a set tenure that will provide you high rate of interest in return. It provides relatively higher rate of return than a savings account, but does not involve any risk just like a savings account. Fixed Deposit is considered to be one of the safest and easiest investment options among investors in India and can be opened in a nearest branch of any bank. Nowadays, many banks have also started providing the option of opening a high interest fixed deposit online.
While mutual funds and stocks are able to earn you more on your investments, but are feared to be moderately risky investment options. On the other hand, fixed deposit earns it from being a rather safe investment option for those who do not wish to risk their earnings. If you have extra funds that you want to invest without involving any risk and earning good returns, then you should consider opening a high interest fixed deposit account for the following reasons:
Features of a Fixed Deposit
- Easy to open – You can open a high interest fixed deposit with any bank or financial institution providing a competitive interest rate with simple documentation by visiting the bank. Many banks have also started providing fixed deposit online following some simple steps.
- High Rate of Interest – The rate of return on a fixed deposit varies on the basis of amount invested, tenure for which it is invested and the issuing bank or financial institution. Interest is also paid on regular intervals or at the time of maturity on a fixed deposit. You can choose the fixed deposit interest to be paid on a monthly, quarterly, half yearly, annually or at the time of maturity. While fixed deposit interest rate tends to change overtime, you can earn interest on fixed deposits as high as 9.25%. But, once invested your fixed deposit interest rate will not change for you.
- Choice of Tenure – With any bank offering a high interest fixed deposit, you get a choice of tenure to fix your funds as per your financial requirements. The tenure of a fixed deposit usually ranges from 7 days to 10 years and the rate of return provided by the bank differ for different tenures.
- Premature Withdrawal – You cannot withdraw money from a fixed deposit before maturity. But, if you need funds due to some emergency situation or personal needs, you can make premature withdrawal of your fixed deposits by paying a penalty. Also, the rate of interest might differ on the basis of tenure that Money cannot be withdrawn from an FD account before maturity, except on payment of a penalty.
- Loan against Fixed Deposit – You can also avail a loan against your fixed deposit through an overdraft facility. Loan against Fixed Deposit will carry a higher rate of return than fixed deposit.
How to invest in High Interest Fixed Deposit?
Following are some important tips that you should consider while investing your hard earned funds in a fixed deposit:
- Compare different Banks
When you have surplus funds that you need to invest, you can consider making an investment in a high interest fixed deposit. But, before investing funds in a fixed deposit you should look for different banks as they offer different interest rates on their fixed deposit. Look around to find the bank or financial institution which pays high interest rate for the amount and tenure that you want to invest.
- Split your money
If you wish to invest your hard earned money in a fixed deposit, try to take the advantage by investing your funds across different banks. The benefit of investing your funds across different banks is that if you are in immediate need of money due to some emergency or personal needs, you would not have to break the entire deposit. You can easily break the fixed deposit for the amount that you require and pay premature penalty for the same. This way the other fixed deposits will continue to earn interest on your invested amount.
- Invest in multiple FD accounts – with different tenures
The interest on a fixed deposit varies with the amount that you want to invest and the tenure that you want to invest for. So, you can opt for different fixed deposit accounts with different tenures to maximise your returns. The rate of interest tends to change overtime as well. This way you will be able to reinvest in fixed deposits with the interest rate updated after maturity.
- Tax liability on Fixed Deposits
One of the most important tips to consider is the tax liability. You should be aware of the fact that the earned interest on fixed deposit is taxable with the income bracket you fall in. If you earn more than Rs 10000 interest on your FD, the amount above Rs 10000 becomes taxable. If you want your earnings from taxes, you can invest in a tax saver fixed deposit.
- Tax Saving FD
You can invest in a tax saving FD to be safe from paying taxes on your earnings from fixed deposit. A Tax Saver Fixed Deposit comes with a lock in period of 5 years which disables you to break your fixed deposit before that. If you break your tax saver FD before maturity, then the amount invested will not qualify for tax deductions. So, one should consider this before investing as you will not be able to access that amount before maturity in any given circumstances.
- Premature Withdrawals
If you want the funds invested in fixed deposit before maturity, then you might have to pay penalty for premature withdrawals. You should consider withdrawing from a fixed deposit only if you require funds for an emergency. If you withdraw your fixed deposit before maturity, you have to pay a penalty and your rate of interest will change taking into consideration the tenure of your fixed deposit.
- Reinvestment of Interest
You can also reinvest your interest earned in your fixed deposit, which results in increasing the principal amount of your fixed deposit. You will be able to earn even more by reinvesting both principal and interest amount in fixed deposit.
Fixed Deposit is a popular investment option among investors as it is one of the safest schemes available which provides assured returns on your investment. For investors who don’t want to take risk, there is no better choice than a fixed deposit to let your money make money for you.