Interest rates on fixed deposits have been on a constant decline, so much so that they are no longer attractive. State Bank of India fixed deposits today earn a maximum interest rate of 5.40 per cent. It's time to get the maximum from fixed deposits and here are some ways to do the same:
Look beyond bank fixed deposits
Did you know that IDFC First Bank offers an interest rate of 7 per cent on its savings account? Did you know that the Kerala government backed deposits of KTDFC fetches an interest rate of 8% on its deposits? In fact, the deposits in the case of KTDFC are guaranteed by the state government via an order.
One must look beyond bank deposits to earn higher returns. Banks like HDFC Bank, ICICI Bank and SBI can offer you an interest rate of just 5.5 per cent.
On the other hand there are many company fixed deposits that are AAA rated offer you an interest rate of as much as 7 per cent. It's important to remember that one should invest only in good quality highly rated company deposits. For a few bucks more, you do not want your principal amount to vanish. Go for institutions that are promoted by a renowned group, have AAA ratings and are known for quality of service.
Keep in mind yields and not interest rates
If you are investing for a period of 2-3 years, look at the overall yields and not interest rates. Let's take an example. Banks compound interest rates every quarter. This means if you invested Rs 1,00,000 at 5% interest rate, they would add the interest rate at the end of the quarter and for the next quarter your interest would be calculated on the principal amount plus the added interest amount. This will push your yields and returns higher.
Some company fixed deposits offer high interest rates, but, they compound interest every year, while banks compound the same every quarter, pushing yields higher. In short, check if interest is compounded quarterly or yearly, before you make an investment decision.
Submit form 15G and 15h if you are not liable to pay tax
If your income falls below the threshold limit of Rs 2.5 lakhs, you can submit form 15g and 15h as the case maybe. This would mean that there would be no TDS deducted needlessly, thus reducing your returns. This has to be submitted early in the financial year, to the bank or the institution where the deposits are being made.
It's important to remember that in the case of banks, the TDS amount would be deducted after your interest income crosses Rs 10,000. In the case of company fixed deposits, a TDS is deducted, if the interest rate crosses Rs 5,000.
About the author:
Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds, debts, commodities and tax planning.