Most Indians invest in Fixed Deposits as they’re safe investment schemes and you receive fixed returns. They are considered to be risk-free investments as the Fixed Deposit interest rate doesn’t change according to market conditions. However, FDs require you to lock your funds for a fixed period of time and a penalty charge can be levied if you withdraw prematurely.

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If you’re planning on investing in FDs, here are 4 top tips for investing in Fixed Deposits.

1. FDs aren’t Completely Safe

FD (Fixed Deposits) aren’t as risk-free as they’re assumed to be. While corporate deposits (unsecured loans) don’t guarantee protection, the Deposit Insurance and Guarantee Corporation (DICGC) of banks insure deposits of up to Rs.1 lakh per customer.

So, how can you safeguard your money? For instance, if you’re planning to invest an amount of Rs.4 lakh, you can split the amount and invest it in different Fixed Deposits across three to four different banks. The advantage of doing so? You needn’t withdraw the complete amount when you’re in need of cash. And, you’ll pay the penalty for only one premature withdrawal, while the rest of your cash will keep growing.

2. Create a Step-like Investment

FDs are prone to instability as their rates of interest change according to multi-year cycles. To avoid any losses, you can invest your money in different banks and choose different tenures to create a step investment.

If you wish to invest about Rs.5 lakh, you can split the amount and invest in Fixed Deposits of 4 separate banks. Choose a varying range of tenures, in fact, let the FDs have consecutive tenures—one, two, three, and four years. Once your first FD matures, you can reinvest the proceeds for another term. This will allow the interest rate fluctuations to balance out over time and will ensure a high level of liquidity, as you’ll have one FD maturing each year.

3. Penalisation on Premature Withdrawals

One of the most important Fixed Deposit tips? Get the tenure right! If you’ve invested in a long term FD and you make an untimely withdrawal, you will not yield high returns.

For example, if you invest in a 5-year Fixed Deposit but break it after a year, you’ll only receive the interest charges applicable for a one-year deposit. What’s worse, you’ll have to pay a premature withdrawal penalty that lowers the rate of interest by 1%. To avoid such a scenario, adopt the step investing strategy.

4. FDs are Taxable

Did you know interests earned from FDs are taxable? If you earn more than Rs.10,000 per annum, your bank or financial institution will charge 10.3% TDS, even before you get the amount. If you belong to the higher tax bracket (earning more than Rs.1 crore p.a.), you’ll have to pay even more tax on FDs. Some financial institutions such as Bajaj Finserv do not deduct tax at the source for interest charges for up to Rs.5,000 per annum.

Even if the tax hasn’t been deducted, you should mention the interest charges earned when filing your income tax returns. If your income is not taxable but you have been charged with TDS, you can claim it back via tax returns. To avoid the process, you must let the Income Tax Department know that you’re below the taxable limit by submitting Form 15G. If you’re a senior citizen, you can submit your plea via Form 15H. At Bajaj Finserv, senior citizens can also enjoy an additional rate of interest of 0.25% on their Fixed Deposits.

The next time you plan on investing in FDs, remember these simple tips so that you can get maximum returns and pay minimum penalty charges.If you confuse what maturity amount you will get, Use Bajaj Finance fd calculator to calculate your maturity amount.

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