Investments are essential to building your savings for the future. However, you need not look far for the options. Most investors are cautious about their finances generally. While Mutual Funds are lucrative, they require a thorough market understanding and a high-risk appetite. Hence, banks have a safer alternative as Term Deposits. They are the sound alternative for growing your wealth gradually.
However, a Recurring and Fixed Deposit offers comparatively steady interest rates. This does not mean they are not lucrative. It is only about how you can use them to the maximum. You need effective strategies in place for this purpose:
Research and compare
The key to getting any good deal in the financial marketplace is research. The same applies to Fixed and Recurring Deposit. Banks quote the interest rates offered on their websites. They also provide calculators for estimating returns based on your needs. Hence, use such resources and research well.
Avoid withdrawals
The fundamental concept behind Term Deposits is that they lock your funds and provide interest rates. Thus, withdrawing before maturity is not encouraged. However, you can make premature withdrawals. But this results in penalties from your Recurring and FD interest rates. Therefore, withhold such withdrawals if you want to maximise returns. Instead, try opting for loans against them during emergencies.
Lengthy duration
The deposit duration for RDs ranges anywhere between six to 10 years. On the other hand, FDs come with a period of seven days to 10 years. The interest you earn is directly proportional to the deposit term. Therefore, opt for durations according to your return expectations. If you want to maximise the interest, opt for a longer duration.
Consider tax benefits
The tax deducted at source only applies when your income comes under the tax bracket. If this is not the case, ensure to submit a declaration form 15H and 15G to receive an exemption. Additionally, you enjoy a rebate if your interest income is below Rs. 40,000 on your FD Account. RDs provide similar exceptions on interest amounts of up to Rs. 10,000.
To take this step further, you have a tax-saver Term Deposit option that offers a deduction of up to Rs. 1.5 lakh. However, it comes with a minimum lock-in period of five years.
Appropriate management
Fixed investments do not require you to do much after investing initially. You fund the account, and it is operational instantly. However, an RD Account needs you to invest monthly. Defaulting on the attracts penalties. Hence, try using Banking apps to avoid missing due dates.