The stability of interest income applicable to FDs captivates several investors. Fixed Deposits (FDs) – one of the most secured investments. Interest earned on FDs can be paid periodically (non-cumulative FD) or compounded and paid upon maturity (cumulative FD) as per the preference of the investor. But if you want to maximize returns on your FDs, compound interest on cumulative FDs is advisable so that you can benefit from the highest FD rates.
Ensuring Highest FD Rates
There are some factors that impact FD rates in India across different financial institutions. Following are the factors to be considered while calculating the returns as per the applicable FD rates in India:
- The higher the tenor, the higher the interest rate offered, though it tapers down with very long tenors depending on the economic conditions.
- The longer the tenor of the deposit, the higher the interest.
- Cumulative fixed deposits earn higher interest because of its compounding power.
- Senior Citizens get the highest FD rates in India.
- Additional interest percentage is available upon auto-renewal of FD, such as in the case of Bajaj Finance FD. You can also earn an additional 0.10% interest rate with Bajaj Finance FD if you choose to invest online.
An FD rate calculator with an easy-to-use interface is offered by Bajaj Finance. It shows the applicable interest rate as well as the maturity amount as per your selection of the factors mentioned above. Bajaj Finance Fixed Deposits start with Rs. 25,000 and earn interest at higher rates up to 7.35%. These deposits are rated FAAA/Stable by CRISIL and MAAA/Stable by ICRA, which are the highest stability ratings conferred on FDs.
Calculating FD Interest & Maturity amount
The formula to calculate the FD interest is A=P(1+r/n)^n*t
Where,
A – Maturity Amount
P – Amount Deposited in FD
r – Rate of Interest
n – Tenor Invested in FD
It is quite difficult and labour-intensive to manually calculate the interest rate and maturity amount using such formulas. Instead, you can use an online FD calculator to get an exact estimate of the returns on your deposit.
Aspects to be considered to get highest returns
The following factors can help you gain high returns on FD:
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Invest in Fixed Deposits with varying tenor
Spread your FDs across different tenors. It will help you if money is needed in the future. You will not have to bear a loss of interest on all FDs. You can opt for 12-60 months tenor with Bajaj Finance FD. You can also use the multi-deposit facility with Bajaj Finance FD to invest in multiple FDs having different tenors with a single payment cheque.
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Tax aspect of Fixed Deposits – TDS
Tax implication rules are important to know. The interest earned on FDs is taxable in the hands of investors according to the tax bracket they fall in. However, it is exempt from taxes if it does not exceed Rs. 40,000 (Rs.50,000 for senior citizens) annually.
If you are receiving total FD interest more than Rs.40,000 but your income is lower than the exempted income tax slab (up to Rs. 2,50,000) and is not liable to pay income tax, Form 15G/H will help you to save TDS. You will not be required to pay taxes.
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Partial Withdrawal:
If you opt for partial withdrawal of funds, you have to bear a loss of earnings due to interest rate penalty applicable on premature withdrawal. Bajaj Finance FDs offers partial withdrawal facility and also provides the option to avail a loan against your FD. If you opt for a loan against FD in times of financial emergency, you don’t have to bear a penalty loss for premature FD withdrawal. You can get up to 75% value of the deposit and the FD will stay intact and will continue to earn interest for you.
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Reinvestment risk:
At the time of maturity, your funds will be reinvested if you do not redeem your funds. In a falling interest rate environment, FDs that are due to mature will get offered a lower rate at the time of maturity. In such a scenario, it is best to lock-in prevailing high rates for a long tenor.