With the decline in interest rates in India since January 2015, the rates on bank Fixed Deposits were almost down to unattractive levels. In the last few months, the bond yields are again above 8%, giving a slight fillip to FD returns. FD’s are a traditional and trusted investment across generations.
Banks are also offering sweeteners in the form of a higher interest rate on FD as they work hard to increase their Current and Savings Accounts deposits. But how to handle this deluge of deposit information and choose the best one? The following are the tips:
Shop Around
Previously, you opened FD’s with your traditional bank only. But now, deposit syndicated information helps you compare various options offered by banks and make a conscious decision. When you have surplus funds, you can consider investing in a high interest Fixed Deposit. But why be in a hurry to jump on the first bank available?
Look around for different banks and the interest rates on their schemes. Since most Bank Deposits have a similar profile, try and get the best rates.
Tax implications
When you invest in a Tax-Saving FD with a five-year lock-in, you have entitled to an annual exemption of Rs. 1.50 lac. The most important thing to consider is tax liability. Be aware that the Fixed Deposit interest rates earned are taxable within the income bracket. If you make more than Rs 10,000 interest on your FD, the amount above becomes taxable.
For senior citizens, this limit for tax exemption has risen to Rs. 50,000 per year, effective from the Union Budget 2018.
Diversification
The best trick is to spread your FD’s out across a few banks to see the difference in service standards and take a call after that. The interest rate on the FD varies with the investment amount and tenure chosen. Therefore, the higher the term, the better the returns. You can earn higher interest as a senior citizen.
Tax-Saving FD’s
Invest in Tax-Saving FD’s to avoid paying taxes on your earnings from the deposit. They come with a lock-in period of five years. If you break the deposit before maturity, the amount invested does not qualify for tax deductions.
Penalties for Premature Withdrawals
The tenure is between seven days to 10 years. If you want to withdraw the funds invested in a Fixed Deposit before maturity, you might pay the penalty. You can also borrow a Loan against it, resulting in a higher interest payable. Consider withdrawing only during emergencies
