A fixed deposit or FD is a guaranteed investment opportunity that offers you safe and immediate returns at a pre-affixed rate of interest. The main purpose of a fixed deposit account is that you can keep your money in that account and earn a fixed rate of interest in the subsequent periods irrespective of the business cycle fluctuations and the booms or lags of the economy. It is thus a certain way of earning a guaranteed amount of interest and as such has no risks associated with it.
Since fixed deposits offer you a fixed interest rate, you can always calculate your net earnings and profit from your investment once the loan matures. One thing that should be borne about FDs is that they always come with a fixed maturity period. So once you put your cash into the FD account you will be assured of a fixed interest-earning but only after the completion of the repayment or credit tenure and not before that. In case you wish to break the bond and take out your money from the fixed deposit account, you will have to pay a transaction fee or be charged for it, not to mention the interest earnings that you’ll be losing out on for the remaining months until the due date.
Ways to yield better returns of FD
Return on fixed deposit is essentially the interest you’ll be earning by depositing your money in the fixed deposit account, taking into account both the financial costs and the opportunity costs of not investing your money elsewhere or even for transactional purposes. Most banks offer a fixed return of 1.5 to 3 per cent whereas company offered FDs have slightly higher going rates at around 3.5 to 5 per cent. Besides the usual interest rate comparison, a lot of other factors come into the picture when you are looking to invest in some profit-making venture. For any rational consumer then, the goal would be to maximize his yield from Fixed deposits without having to compromise on any of the other factors. In order to find out the details of how to maximize your returns on fixed deposits, read on.
Go for short term deposits
Investors can take into note that the short term rates on fixed deposits have been hiked meaning deposits that have a credit period of say one or two months or even 90 days at maximum would yield higher returns than the fixed deposits which mature after say three to five years. Over the years, especially in the covid induced economic fluctuations, many banks, both private or nationalized, have relentlessly slashed down their rates of interest which has discouraged people from going to banks and depositing money for interest. The opportunity cost of holding bonds has only increased in return. However company-offered loans like Bajaj or HDFC have instead gone for a hike in their bank interest rates, which has attracted customers but the catch is the same. They offer the hike only on short term deposits since chances of profit from the same for a bank or company is more.
Try to avoid long term investments
Long term investments are not always wise for a rational investor. Fixed deposits are a certain way to earn and also risk-free and secure but if you keep your money locked in for a prolonged period of time, you might incur high opportunity costs of utilizing the same elsewhere. As such you wouldn’t be able to realize fully its potential and it would yield way less interest than if you had invested it at a later date. Again in case the economy goes through periods of inflation, demand for money would increase and the interest rates offered by the bank on your FD would decrease and then making long term investments certainly becomes an unwise decision.
Avoid low returns by using the FD ladder strategy
An FD ladder basically refers to how an investor can break his long term low interest yielding FD bond and instead invest the same money in fractions in multiple short term fixed deposit bonds. As such the net interest earned from the money would be greater than what you were earning by fixing the whole sum under one interest head. Hence this step is quite an important one if you wish to escape financial losses from taxation and profits from holding your entire sum under a pre-affixed bond rate.
These are the three basic strategies one should keep in mind while holding money in fixed deposit bonds. Go through them thoroughly as well as the policies of the investment company or bank before you decide to deposit your money.
