Fixed Deposits (FDs) are one of the safest investment options for risk-averse investors. They offer guaranteed returns and flexible tenure options. However, renewing an FD without proper planning can result in missed opportunities for higher returns. Interest rates, tenure, and reinvestment strategies impact your returns.
Let us explore the best tips to renew Fixed Deposits for higher returns while avoiding common financial pitfalls.
How to maximise returns when renewing Fixed Deposits?
1. Opt for auto-renewal
Choose the auto-renewal option for your Fixed Deposits. This helps you renew your FD automatically to keep earning interest without any manual effort or missed deadlines. You protect your investment from idle time because the principal and interest roll over seamlessly at maturity.
2. Submit form 15G or 15H
If your total income falls below the taxable threshold, you can submit Form 15G (for individuals) or Form 15H (for senior citizens). This prevents banks from deducting Tax Deducted at Source (TDS) on your FD interest. It eventually allows you to retain the full interest earned.
3. Implement the laddering strategy
You can divide your total investment into several Fixed Deposits with different maturities to enjoy liquidity and flexible reinvestment options. You can reinvest each FD as it matures, which helps you benefit from possibly higher interest rates.
4. Choose cumulative Fixed Deposits
In cumulative Fixed Deposits, the interest is compounded and paid at maturity. You earn compound interest when the bank adds accrued interest to your principal until final maturity. You gain a larger amount at the end if you do not require frequent interest payouts.
5. Monitor interest rate trends
You should track current market rates to decide whether you need short-term or long-term FD investments. You can invest in short tenures during rising rates or lock in longer tenures if rates start dropping.
6. Compare FD rates
Interest rates offered by banks for different tenures and amounts may differ. Hence, you must compare FDs from various banks and financial institutions for different tenures before you renew your investment to make an informed decision.
7. Avoid premature withdrawals
Withdrawing your funds before the FD maturity often carries penalties. The earlier you withdraw an FD, the more return you lose compared to the agreed maturity date. You also run the risk of penalty charges, which lower your net interest. So, plan your finances carefully.
8. Consider Senior Citizen Fixed Deposits
You can unlock higher interest if you qualify for senior citizen FD schemes. You receive a special rate that boosts your total earnings beyond standard FD rates.
9. Explore Corporate Fixed Deposits
You might gain more interest in corporate Fixed Deposits from non-banking financial institutions, but these can carry greater risk. You should check the company’s credit rating to ensure your principal stays as secure as possible.
10. Align Fixed Deposits with financial goals
You should match every FD’s tenure to your financial goals. By selecting the FD tenure that fits your timeline and future targets, you can obtain better financial outcomes.
Conclusion
Applying these simple methods and staying aware of market changes can strengthen your return from Fixed Deposits. You should review your strategy regularly to ensure your hard-earned money works effectively. This will help your investments grow steadily while giving you peace of mind.
