Fixed Deposit

How to Get the Best Fixed Deposit Interest Rates

NiftyTrader • December 13, 2024

Looking to grow your savings safely? Fixed Deposits (FDs) are a dependable option. With FDs, you get guaranteed returns, boosted by the power of compounding—interest on your interest. Unlike Mutual Funds, FD rates remain unaffected by market fluctuations, ensuring your investment stays secure.

In this guide, we’ll share practical tips to help you secure the best FD interest rates and maximise your returns. Whether you’re new to FDs or seeking better returns on your existing ones, these tips will empower you to make smart choices and optimise your savings.

FD – Tips

1. Do Thorough Research Before Investing

Before committing to an FD, research is key. Check your bank’s website for the latest interest rates across different tenures. Compare rates from various financial institutions to find the one offering the best return for your chosen tenure.

2. Choose the Ideal Tenure

FD interest rates fluctuate based on tenure length. Typically, longer tenures offer higher rates. Sometimes, even extending your FD by a few days can result in a better rate. Therefore, selecting the right tenure is crucial for securing the best return on your fixed deposit.

3. Leverage Senior Citizen FDs

Senior citizens enjoy a higher rate—often 0.50% more than standard rates. If you have senior family members, consider opening an FD in their name to take advantage of these additional returns.

4. Opt for Cumulative FDs

FDs offer two options: regular interest payouts (monthly or quarterly) or cumulative FDs, where interest is reinvested. To maximise your returns, go for the cumulative option, where the interest is compounded and added to the principal amount. This way, you benefit from earning interest on both the original deposit and accumulated interest, boosting your maturity amount.

5. Understand Tax Implications

FD interest is taxable. If the interest earned exceeds ₹40,000 for regular account holders (₹50,000 for senior citizens), banks will deduct TDS (Tax Deducted at Source). To maximise your returns, consider investing in a tax-saving FD, which is eligible for deductions under Section 80C of the Income Tax Act. However, remember that this benefit is only available if you opt for the old tax regime.

6. Explore Small Finance Banks

Compared to commercial banks, Small Finance Banks (SFBs) can have more alluring interest rates. If you want higher FD rates, you might think about these institutions, which mostly serve rural and semi-urban areas.

7. Avoid Premature Withdrawals

Keep your FD open until the conclusion of its term to get the most out of compounding. In addition to fines, early withdrawals lower your total returns. You will benefit as much as possible from both the principle and the compound interest if you allow your FD to run its whole course.

Reason to Explore Alternative Investment Options

Risk: Generally speaking, investors that value capital security and want to generate returns higher than inflation select fixed deposits (FDs). Even though FDs provide returns that outpace inflation, post-tax gains are sometimes less than those of other investing options.

FDs have a set maturity period, and there are penalties for taking money out before then. They are therefore vulnerable to hazards related to both inflation and liquidity.

You may want to look at market-linked instruments if you’re willing to take on additional risk. Government-backed assets, however, can be a safer choice for you if you’re risk averse.

Returns: Creating returns and increasing wealth is the main objective of investing.

Depending on the bank’s credit ratings, FDs usually offer yearly yields between 5% and 8%.

Although alternative investment options frequently yield larger returns, they also have different levels of risk, lock-in periods, and other considerations that should be balanced against your financial objectives, risk tolerance, and investment horizon.

Investment Horizon: Investing all of your money in FDs is not advised. In general, it is more advantageous to have a broad portfolio that spans multiple asset types.

Especially for long-term investments, this strategy enables investors to take advantage of additional wealth-generating opportunities.

Fixed Deposits – Other Options

Debt Mutual Funds: The popularity of mutual funds has increased significantly, and their Assets Under Management (AUM) have hit all-time highs. In an attempt to outperform FDs in terms of returns, more investors are shifting their household savings into the equity markets.

Arbitrage Funds: Arbitrage funds fall under the hybrid mutual funds category. They generate returns by taking advantage of the price differences between the stock and futures markets while also investing surplus cash in fixed-income instruments. They are suitable for short-term investments (less than a year) and offer expected returns of around 7% to 9% annually.

Despite being categorized as hybrid funds, arbitrage funds are taxed like equity investments, with short-term capital gains (STCG) taxed at 20% and long-term capital gains (LTCG) taxed at 12.5% annually.

Liquid Funds: As the name suggests, liquid funds are debt mutual funds that make investments in highly liquid money market instruments, such as commercial papers, certificates of deposit, and treasury bills, with maturities as short as ninety-one days. These funds are a desirable short-term investment due to their low risk, high liquidity, and lack of lock-in period.

Ultra-short and Short-duration Funds: These funds invest in debt instruments with maturities of 6 months to 1 year (ultra-short) and 1 to 3 years (short-duration). They are a viable alternative for investors who typically choose FDs with tenures ranging from 12 to 35 months.

Long-duration & Gilt Funds: Long-duration debt mutual funds invest in bonds with maturities greater than 7 years. These funds, along with gilt funds, are likely to benefit the most from a falling interest rate environment.

Gilt funds, which invest in government securities (G-secs), can deliver returns above 7% annually, making them a strong option for long-term investors.

Government Securities (G-secs): Because the government backs them, government securities are among the safest debt investments. The purpose of issuing these long-term bonds is to raise money for initiatives like infrastructure improvement and budget deficit reduction.

For example, a government bond yielding 7.10% maturing in April 2034 means it will pay 7.10% interest annually until 2034. Interest earned is taxed as per your income tax slab, while capital appreciation is subject to LTCG tax of 12.5%.

National Pension System (NPS): NPS is a retirement-focused investment that allocates funds to a variety of asset classes, including equity, bonds, and government securities.

There are two tiers: Tier I, which has a 60-year lock-in, and Tier II, which allows flexible withdrawals. NPS has delivered steady returns between 8% to 12% annually. However, new investments after April 2023 are taxed based on the investor’s tax slab.

Public Provident Fund (PPF): PPF is a popular long-term investment option offering guaranteed annual returns. It comes with a 15-year lock-in and offers tax benefits up to ₹1.5 lakh annually under Section 80C. PPF falls under the EEE category (Exempt-Exempt-Exempt), meaning that both interest earned and maturity proceeds are tax-free if held till maturity. The current PPF interest rate is 7.1% (Q2 of FY 2024-25).

Physical Gold: In India, gold has always been a popular investment. Gold has produced yearly returns of 10.7% to 11.9% over the long run (10–15 years), greatly above inflation. In addition to being very liquid, gold investments can be made in a number of ways, including sovereign gold bonds, digital gold, physical gold, and gold exchange-traded funds (ETFs).

Best Fixed Deposit Schemes To Invest In India in 2024

Banks Offering FDInterest  RateSenior Citizen Interest RateTenure
AXIS Bank3.50-6.10%3.50-6.85%7 days-10 years
Bandhan Bank 3.00% – 5.50%3.75% – 6.25%7 days – 10 years
Bank of Baroda3.00% – 5.65%3.50% – 6.65%7 days – 10 years
Canara Bank3.25% – 7.00%3.25% – 7.50%15 days – 10 years
HDFC Bank3.00% – 4.00%3.50% – 4.50%33-99 months
ICICI Bank3.00% – 6.00%3.50% – 6.60%7 days -10 years
Kotak Bank2.50% – 5.25%3.00% – 5.75%7 days – 10 years
Punjab National Bank3.00%-5.75%3.50%-6.25%1-10 years
State Bank of India3.00% – 5.85%3.50%-6.65%7 days-10 years
Union Bank3.00% – 6.70%3.50% – 7.20%7 days – 10 years

Top Fixed Deposit Schemes To Invest In India: Overview

Here are some of the banks offering the best FD rates in India-

Axis Bank: Axis Bank, one of the biggest private sector banks in India, provides attractive fixed deposit interest rates. For a set period of time, customers can invest a minimal investment; withdrawals are not permitted until the account matures.

Bandhan Bank: Known for its retail and small business lending, Bandhan Bank provides secure FD options, with a treasury focused on sovereign securities and central funding.

Bank of Baroda: Offering services across retail, corporate, and wholesale banking, Bank of Baroda is a popular choice for high FD rates in both domestic and foreign operations.

Canara Bank: This government-owned bank provides a wide range of banking services, including some of the best fixed deposit plans, with a focus on retail and corporate banking.

HDFC Bank: Supported by a robust treasury and investment portfolio, HDFC Bank, one of the leading private banks in India, provides a range of FD programs with high interest rates.

Conclusion

Fixed Deposits (FDs) remain a reliable and low-risk investment option for those looking to grow their savings safely. While they offer guaranteed returns, selecting the best FD scheme requires careful consideration of interest rates, tenures, and tax implications. By doing thorough research, opting for cumulative FDs, and leveraging senior citizen benefits, you can significantly boost your returns. Additionally, exploring alternative investment options like debt mutual funds or government securities can help diversify your portfolio and potentially generate higher returns. Remember, choosing the right investment depends on your financial goals, risk tolerance, and investment horizon.

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