6 Proven Tips for Best FD Returns

1. Consider Cumulative Fixed Deposit Plan

There are two types of FDs - cumulative and non-cumulative. For cumulative deposits, the total amount (principal and interest) is paid at the time of maturity of your FD. The interest earned is compounded every year and reinvested along with the principal amount till maturity, resulting in higher overall returns.

2. Utilising a Ladder Investment Strategy

Investing in a cumulative FD means that you will receive interest along with the principal amount only at maturity. But what if you have an urgent financial requirement before maturity? This is where a ladder investment strategy may come in handy.

Instead of investing the entire amount in a single FD, split it into multiple FDs with different maturity tenures. For example, if you want to invest ₹5 lakh, divide it into five parts and invest ₹1 lakh each in FDs with maturities of 1 year, 2 years, 3 years, 4 years, and 5 years. This way, you will have one FD maturing every year, providing liquidity. Also, with this strategy, you can also make the most of returns via 
short-term FDs.

However, there are a few factors you may consider before opting for FD laddering.

Factors to Consider Before Opting for FD Laddering:

• Setting Your Investment Goals: You should be clear about your investment goals. Align the timing of your FDs based on that.
• Risk and Reward Balance: Assess how much risk you are comfortable with and choose the investment amount accordingly. Typically, FDs carry minimal risk, however, you may consider liquidity concerns before investing.
• Planning for Urgent Needs: Consider your financial needs and set up your FD ladder strategy accordingly so that you can access money when needed without incurring early withdrawal fees.
• Understanding Tax Implications: The interest income is taxable as per your tax slab. Take into account how taxes will affect your overall returns and plan accordingly.
• Knowing the Fine Print: Familiarise yourself with the rules regarding early withdrawal, renewal, and interest rates to avoid any surprises.

3. Avoid Breaking your FD Before Maturity

Early or premature withdrawals can have a significant impact on your returns. When you make a premature withdrawal, the financial institution would calculate the interest rate basis your current FD tenure and not the tenure you had initially selected. This will have an impact on your returns. Also, you may be liable for penalty charges for early withdrawal.

4. Submit Form 15G and 15H

If the interest earned on your fixed deposit exceeds a specific threshold, the income tax department will deduct TDS as per the Income Tax Act. However, you can avoid a TDS deduction on your corporate fixed deposit by submitting either Form 15G or Form 15H (for senior citizens).

5. Start FDs for Parents (Senior Citizens)

f your parents are senior citizens, opening a fixed deposit in their name can help you earn higher interest rates on FDs. Additionally, your parents can save on taxes by submitting form 15G and 15H.

6. Look for Small Finance Banks

Small Finance Banks (SFBs) generally offer higher FD rates compared to traditional banks. Additionally, SFBs offer various FD schemes to meet various financial goals. And investing in these FDs is very simple, you need minimal documents and the entire application process is mostly digital.

Run through these factors to achieve best FD returns. Use FD ROI calculator to compare and calculate returns.

Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

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