Many investors open a fixed deposit account whenever they earn more than they need to spend. However, many do not realize that they can earn more from their investment only if they know the tricks.
Maximizing the returns from fixed deposit investment is easy when you know the correct way to do so. This article discusses the top tips you need to find the best FD plan to help you fulfill your financial goals faster.
Proven Tips To Find The Best FD Plan
The financial institution determines the returns you get from FD investments. The minimum amount for FD depends on the type of financial institution you choose.
Fixed deposit schemes are offered by three types of financial institutions in India – banks, housing finance companies, and non-banking financial companies. All three types of financial institutions provide easy account opening.
However, some housing finance companies offer a doorstep service facility, where an officer visits your house to collect the documents and open the fixed deposit account.
Like the minimum amount for FD, the financial institution also determines the interest rate. Generally, banks offer the lowest FD interest rates in India.
Presently, bank FD rates start from 3% and go up to 6% per annum. This is followed by non-banking financial companies and housing finance companies. For instance, some housing finance companies offer the best FD interest rates of up to 6.95% per annum.
A high interest rate translates to bigger and better returns. It can also help you to fulfill your financial goals faster. So, before deciding which FD scheme to choose, always consider the interest rate.
Besides the financial institution, the minimum amount for FD also depends on the FD type. You can invest in two broad types of fixed deposit schemes in India – a cumulative FD and a non-cumulative FD.
A cumulative FD returns your investment, along with interest, on the final date of the investment tenor. In contrast, a non-cumulative FD provides periodic returns. The period may be monthly, quarterly, half-yearly, or annually.
Minimum Amount For FD
As already mentioned, the minimum amount for FD depends on the financial institution and FD type. So, while some financial institutions require INR 1,000 to open an FD account, others need INR 5,000, 10,000, or even 25,000.
For instance, housing finance companies generally allow cumulative FD account opening from INR 10,000 and non-cumulative account opening from INR 25,000.
FD And Inflation Rate
It is good to know that the real return of an FD depends on the inflation rate and not the interest rate. The inflation rate eats into the interest rate and reduces the effective returns.
For instance, if an FD scheme offers a 6% interest rate and the inflation rate is 4.5%, the effective returns from the FD scheme come down to 1.5%. It is wise to invest in the best FD plan offering a higher-than-average interest rate to maximize your capital growth.
Choosing the right investment tenor is crucial to maximizing your returns from the FD plan. The investment tenor depends on the financial institution type.
The investment tenor for bank FDs starts from seven (7) days. But, the investment tenor for housing finance FD schemes generally starts from one (1) year. However, since the FD returns offered by housing finance companies are considerably higher than other financial institutions, investors prefer housing finance companies more.
When you invest in housing finance FDs, you do not have to pay any TDS (Tax Deducted at Source) for income up to INR 5,000 annually.
However, if your income from FD investment is more than INR 5,000 a year, your extra income will be taxed per the prevailing income tax slab.
Loan Against Fixed Deposit Facility
Many financial institutions offer loans against fixed deposit facilities. The interest rate of a loan against FD is generally 2% higher than the prevailing highest interest rate.
Even though the loan against FD interest rate is 2% higher than the prevailing FD rates, it is still lower than a personal loan.
Saving is vital to leading a happy life, and a fixed deposit can offer you the perfect balance of returns and safety. Now that you know the tips to find the best plan arrange the minimum investment amount for the fixed deposit and begin your investment journey today.