Fixed deposits have been a popular choice for investment despite the fluctuating market over decades. Right now, in the post demonetization era, as Indian business learn to run once again, investment has suffered the loss of its audience. People fear losing money because the market isn’t making as many or as bold assumptions as it used to, at least for now.
You might say it’s because the market is unstable. You might say it’s just a trend returning to the limelight. Whatever the justification be, people are once again becoming very interested in fixed deposit rates, its long-term effects, and the safety net it offers.
Why Fixed Deposits
Here’s the thing. To invest, one must first accumulate. And saving money is a big deal. It’s also quite tough.
Fixed deposit schemes are considered an excellent option because
- They’re generally regarded as safe investments for lump sums
- Fixed deposit rates ensure that your returns are secure
- It can run for as little time as seven days and as long as ten years
- Your FD can act as collateral in case you want a loan
Plus, there’s a good deal of benefits in fixed deposits, monthly income scheme, for instance.
The point- Fixed deposit schemes are preferred because they are the least risky investments. The amount can be withdrawn easily, even before the fixed deposit term is over, albeit with a tiny penalty fee. And, your final return can be a smashing prize if you are wise enough to look for reasonable FD interest rates in SBI, or whichever vendor you chose.
Here’re five tips on how to be a wise FD investor.
- Research, Because You Don’t Want to Be the Rabbit Who Lost a Race from a Turtle
Sure, fixed deposit risks are slightest in all senses. But they are not 100% safe. It’s all unicorns and rainbows until you end up investing more than a lakh in a fixed deposit scheme.
The Reserve Bank of India has mandated Deposit Insurance for all banks. It means that your bank is responsible for your investment, no matter what.
However, each depositor is only insured for Rs. 1 lakh. That’s one lakh per customer across every branch of the bank. And, this one lakh is inclusive of the principle you invested as well as the interest amount it earned.
- Split Your Savings
Let’s say you have Rs. 5 lakh that you spend in an FD scheme with a bank. Now, if the bank drowns, so will your money, because RBI rules only make the bank accountable for 1 lakh.Laddering the investments can help. You can put Rs. 1 lakh each in four different schemes with different banks at the highest fixed deposit rates you can find. Pick different tenures too, like 1, 2, 3, and 4 years respectively for each FD.The benefit- every year, for the next four years, one of your FDs will mature, and you’ll be a slightly richer person. You can reinvest this money. Plus, in case there’s an emergency, you can break one of these FDs without putting your entire investment at much risk.
- Look for the Right FD Term before You Can Filter Schemes by FD Interest Rates
In SBI or any bank really, you can notice how fixed deposit rates increase in direct proportion to the term. And it appears to be such a win-win! You put in money for 5 or 10 years, and you get an excellent interest and hence a more substantial sum as the return.Well, what happens when you need money immediately?Even if you have laddered your investment, but chosen long terms for all FD schemes, you’ll have to break one open before it matures in case of an emergency. The penalty and the loss will be yours to pay.When you’re splitting your funds into different Fixed deposits schemes, keep their terms varied as well. When you need to break one, choose the Fd with the shortest maturity period. The penalty will be less, and the rest of your investment would still be safe.
- Figure out the Tax Liability
The interest on your fund grows each year. But, it is taxable. The income bracket that you fall into and the fixed deposit rate you have chosen affect the tax that’ll bundle up as per the interest you earn on the policy. Try to look into tax saver schemes.
- Reinvest the Interest
Let’s say you spend one lakh in a FD scheme. Every year, you can either choose to reinvest the earned interest in the policy or take it out of the bank, for as long as the plan is in-term.
Reinvestment is the preferred option here, as it adds to the final amount you’ll get when the FD matures.
So, What Is Your Investment Goal?
If you want to grow your money, you can split your sum into different schemes. Pick the best fixed deposit rates you can find. Go for the reinvestment option to benefit from the compounding effect.
If, however, you need the FD to serve as a source of periodic income, you can still ladder the scheme you choose with different rates and maturity terms, but don’t go for the reinvestment option then.