There has been an increase in inflation in India, and your fixed deposit may not be able to offer you long-term returns that beat inflation. However, there is still a possibility of beating inflation by a comfortable margin and earning higher FD returns if you invest in a fixed deposit for a short period. In other words, it is the increase in the price of goods and services over a given period. In general, economic theory predicts that the value of rupees won’t stay the same for a long time.
Therefore, it is important to keep inflation in mind when calculating FD returns over time and understand that real returns differ from returns on paper. Regarding investment options, fixed deposits are among India’s safest options. Due to the predetermined interest rate, you can know exactly how much of a return you will earn on maturity with the help of an online FD calculator tool. Despite this, there is still a way for you to maximize the returns on your fixed deposit.
Listed below are some of the ways you can utilize to maximize returns from your bank’s fixed deposit investment to beat inflation
Invest in a cumulative fixed deposit
Based on the fixed deposit rate of return, an FD can fall into two types – the cumulative fixed deposit and the non-cumulative fixed deposit. Cumulative FD pays out interest each quarter or year at the end of the term of the FD, and non-cumulative FD pays out interest according to the intervals selected by you. You should consider a cumulative fixed deposit if you wish to save money, as you’ll earn interest on the interest income earned throughout the deposit term. You can also calculate your cumulative fixed deposit maturity amount using an online FD calculator.
Avoid withdrawals before maturity
Ensure you do not withdraw funds from your deposit before the term expires. If you withdraw your money early, you will lose much interest income. Banks usually charge a penalty of 1% of the interest rate if a withdrawal occurs too early. In addition, investing a lump sum in a single FD is not a good idea because you may need the money for an emergency later.
Calculate and compare interest rates
FD interest rates vary from bank to bank, depending on the type of FD. Therefore, there is a significant benefit to comparing the various FD options and choosing the one with the highest interest rate with the help of an online FD calculator tool. Most banks also offer an online FD calculator through which you can determine the interest and maturity amount for a fixed deposit after a specific term and at a particular interest rate. You can use this online FD calculator to calculate the maturity value of the FD depending on the interest rate and the tenure of the FD.
Submit Form 15g and 15h
If you do not have an income that falls under a taxable slab, you may submit Form 15g and 15h to avoid TDS deductions on your fixed deposit account. The Form 15g is intended for senior citizens over 60, while the Form 15h intends for general people. Applicants with incomes below Rs. 2.5 lakhs can request the bank not to deduct TDS on the interest income from FD by submitting Form 15h.
Consider annual taxation
As you are already aware, the interest you earn on your fixed deposit is taxable. Despite this, no rule specifies a period in which the interest income earned by FDs can be deducted from tax. Banks and non-bank financial institutions deduct tax in some cases every month, whereas others deduct tax on a quarterly or annual basis. Therefore, earning maximum returns on FDs is possible if the TDS is deducted yearly. However, because the interest accumulates on a cumulative basis, there will be a greater accumulation of interest over time.
FD account renewal
Choosing a short-term fixed deposit is smart to beat inflation over the long run. However, don’t forget to renew your fixed deposit after each term ends. You can earn maximum profit by regularly renewing your fixed deposit account to reap full benefits. In this way, you can benefit from the revised interest rates without worrying about market fluctuations.
Conclusion
No investment can guarantee a return that beats inflation. Shortly put, the type of investment option you choose should depend on your financial goals and level of risk tolerance. A fixed deposit is a safe choice if you match the benefits of the deposit with the goals you want to achieve. On the other hand, those willing to take on a greater level of risk to gain greater returns from their investments can choose from various market-linked investment options.
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