March 2, 2024

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Growing Your Money with Current FD Interest Rates: A Step-by-Step Guide

FD rates in India range from 3% to 5.5% per annum, depending on the bank, tenure, and amount invested. Even though these rates may seem low, they offer a decent return compared to other low-risk investments.

Fixed deposits (FDs) are among the most popular investments in India, especially among conservative investors. With FDs, you can grow your money with guaranteed returns safely and reliably. Despite low current FD interest rates in India, investors need to be strategic about how they invest their money and earn a higher gratuity.

Here are some tips for growing your money with the current FD rates in India:

Choose the suitable tenure: 

Interest on FDs is calculated according to the tenure of the investment. With longer tenures, interest rates tend to be higher. Consider investing in FDs with longer tenures if your investment horizon is long-term to earn higher current FD interest rates.

Consider a laddering strategy: 

Investing in laddered FDs creates a staggered maturity date by varying the tenure of the FDs. For example, a one-year, two-year, three-year, four-year, or five-year FD will mature one year apart from the other. Access to a portion of your money yearly can allow you to benefit from higher interest rates for longer tenures.

Compare interest rates: 

There are different current FD interest rates offered by different banks. Comparing rates between multiple banks is the best way to find the best interest rate. Before investing, it is also essential to consider the bank’s reputation and stability.

Invest in a cumulative FD: 

Over time, cumulative FDs can yield higher returns because their interest is compounded quarterly or half-yearly. Amounts earned on interest are added to the principal, which continues to earn interest. There is no interest paid on cumulative FDs until they mature.

Avoid premature withdrawals: 

If you withdraw money from an FD before maturity, you’ll face a penalty, reducing your returns. Therefore, investing only money you are comfortable leaving uninvested throughout the investment period is important.

Consider tax implications: 

The tax significantly reduces the returns from FDs. Investing involves tax implications, so it’s important to factor them in. If you are in a higher tax bracket, you may benefit more from investing in other tax-saving investments.

Diversify your portfolio: 

In addition to growing your money with FDs, diversifying your portfolio will reduce your risks and maximize your returns. In addition to debt mutual funds and government bonds, invest in other low-risk investments to create a well-balanced portfolio.

Invest in senior citizen FDs: 

For senior citizens in India, current FD interest rates are higher. There is a maximum 0.5% rate on senior citizen FDs, which is higher than on regular FDs. Senior citizen FDs could be a good investment for you if you are over 55.

Consider a sweep-in FD:

A sweep-in FD is linked to a savings account. You can earn a higher interest rate on your savings account balance by automatically transferring excess funds into an FD. Earning higher returns does not require sacrificing liquidity.

Invest in corporate FDs: 

Corporate FDs are offered by non-banking financial companies (NBFCs) or corporations. There is a higher interest rate on these than on traditional bank FDs. It is crucial to do extensive research before investing to ensure that the company is reputable and stable.

Invest in tax-saving FDs: 

Our country’s Income Tax Act provides tax benefits for tax-saving FDs. These FDs have more extended lock-in periods, which makes their interest rates higher than regular FDs. Therefore, tax-saving FDs provide higher returns while saving taxes.

Individuals may deduct their deposits from their taxable income under Section 80C of the Income Tax Act. An FD calculator can calculate the interest earned on an FD. Due to the lower returns on FDs, investors may not find them as appealing as other investment strategies, such as debt funds. A safe investment option is a fixed deposit with a well-established financial institution like Bajaj Finserv. For low-risk investments, returns on deposits can range from 6% to 8%.

Even if the interest rates are lower than in previous years, an FD will still be the safer, more reliable option. You can use it to make the most of your financial returns using the strategies and tips we’ve mentioned above. However, we also suggest getting the advice of a financial expert before you begin your investments.