Why you need a Fixed Deposit strategy
A fixed deposit is a safe investment to secure your future, and compared to any other investment the risk factors of fixed deposit are the least. However having a clear fixed deposit strategy is essential if you want to maximize your earnings. Here’s what you need to know.
With falling inflation and the RBI insisting on lower interest rates to fuel growth, interest rates for fixed deposit are likely to fall in the coming months. Right now, investors have a ripe opportunity to invest in long term fixed deposits.
Why Choose a Fixed Deposit?
Investing in a fixed deposit is the ideal strategy for anyone who is looking to lock funds with no to very low risk. This investment also allows the investor to have easy access to the invested amount in case of an urgent requirement of cash on short notice. Today, opening a fixed deposit account is easy and the same can be applied for, approved and managed online without ever having to step outside your house.
While it is easy to understand why a fixed deposit is a good investment, you should also consider the following factors to develop a beneficial fixed deposit strategy:
Pay Attention When The FD Is Started:
While a fixed deposit provides both short term and long term deposit options, you need to keep your financial goals in mind. In a fixed deposit, an investor has the possibility to lock his/her investment for a long term at a predetermined rate of interest. With the interest rate already determined and the return confirmed there is no need to check the growth in the fixed deposit account. In fact, it works best if the same is forgotten about. For example, suppose you choose a 5-year deposit at 8% interest per annum. Once chosen at the time of opening, the fixed deposit will remain the same until the maturity of the deposit. Interest rate fluctuations in the market once your FD is opened do not change or affect the rate of interest on the existing fixed deposit.
Check The Term of Deposit to Maximize Interest:
In the case of fixed deposits, a two to three-year term is considered a long term investment. However, in the current market scenario with the interest rates expected to decrease slightly, it may be prudent to change your fixed deposit strategy for a longer period of five to seven years. It is important to consider the anticipated future market when finalizing the term of the fixed deposit. In case you choose a shorter term of the deposit and the prevailing interest rates on maturity are lower then you will be forced to reinvest at a lower rate of interest.
Know The Taxation Laws Pertaining to Your Interest Earnings:
Earnings from fixed deposits are taxed at the income slab of the investor. There is no special treatment for interest earned from fixed deposits. Further, your chosen lender’s branch is required to deduct TDS at 10% if the interest from your FD exceeds Rs.10,000 in a year. For this reason many investors divide their deposits between two or more branches of the lender.
Be Aware of Interest Rates and Outlook of Various Lenders:
It is important to note that the FD interest rate varies with the term of the fixed deposit. It is necessary to be careful in selecting the term of the fixed deposits. The interest rates offered by every bank, NBFC or financial institution varies depending on factors such as the lender’s liquidity, its requirement of funds for the term of the fixed deposit selected as well as the interest rates offered by the competition.
Keeping these 4 tips in mind, you can plan your FD account/s to generate the maximum return while ensuring that the investment is safe. While many banks and NBFCs offer fixed deposit accounts, take a look at the interest rates and services offered by Bajaj Finance Limited. They offer a hassle-free online application and require minimal documentation to start a Fixed Deposit account for you. They also have competitive FD interest rates to ensure that your money grows.