6 MinsApril 28, 2022
Bank Fixed Deposits (FDs) offer stable returns and are available to use as and when required. This makes them highly liquid as an investment option and hence, a preferred investment choice for most investors.
If you are new to investing, FDs can help you plan for your short-term financial goals. Since they offer a fixed rate of interest they are also a good option to meet contingency needs or unexpected expenses, such as a medical emergency or an unplanned
trip.
The following tips can help you maximise your returns by investing in bank FD…
1) Link your savings account with a bank FD – By automatically transferring the money from your Savings Account into a Fixed Deposit when the balance crosses a certain limit, say Rs 25,000, you can save more efficiently.
The money could be automatically transferred into a fixed deposit from your savings bank account when the balance in it crosses a certain limit, say Rs 25,000. Axis Bank’s Auto Fixed Deposit can be linked to your Axis Bank savings account, facilitating automatic transfers in multiples of Rs 5,000 to a fixed deposit.
The other option is starting a Recurring Deposit from your savings bank account. This form of term deposit would enable you to invest steadily, regularly, and systematically every
month, thereby instilling financial discipline.Use Axis Bank’s Recurring Deposit calculator to know how much the value of the recurring
deposit would be at maturity.
2) Choose your investment plan and tenure thoughtfully – Ideally, make it a point to match the tenure of your bank FD with your financial goal. Further, select from options such as the cumulative plan and monthly or quarterly
interest pay-out plans, as per your needs. For example, if you are planning for a financial goal, that is, say 2 or 3 years from now, and you do not require cash in the interim period; opt for the cumulative plan, also known as the reinvestment
of interest plan. On the other hand, if you need cash for regular expenses, such as paying utility bills -- you could choose the monthly or quarterly interest pay-out plan, as per your suitability. To know how much you will receive as returns,
use Axis Bank’s FD calculator.
3) Follow the fixed deposit laddering strategy – This is one of the popular strategies to invest in bank FDs that can help you earn high returns and address liquidity needs. Say you have a lump sum of Rs 3 lakh; this can be spread across
tenures as under:
| FD No. | Amount Invested (in Rs) | FD Tenure (in years) | Interest Rate (%) | IInterest earned (in Rs) | Amount at Maturity (in Rs) |
|---|
| 1. | 60,000 | 1 | 5.10 | 3,119 | 63,119 |
| 2. | 60,000 | 2 | 5.40 | 6,795 | 66,795 |
| 3. | 60,000 | 3 | 5.40 | 10,475 | 70,475 |
| 4. | 60,000 | 4 | 5.40 | 14,359 | 74,359 |
| 5. | 60,000 | 5 | 5.75 | 19,822 | 79,822 |
| Total | 300,000 | | | 54570 | 354570 |
interest rates considered are currently those offered by Axis Bank.
(For illustration purpose only)
Note that you don't need to invest an equal sum across maturity periods; you may invest a bigger sum for a period that offers higher Fixed Deposit Interest Rate. You
are free to decide the maturity period (i.e. the tenure of your FD) as well as the amount to form the ladder that suits your needs. The key is that with one FD maturing at specified intervals, you will have the maturity proceeds available
to use (for whatever purpose). Plus, the interest earned would be higher for longer maturities enabling you to earn potentially higher returns.
[Also Read: Build a corpus through Fixed Deposit laddering]
4) Keep renewing your bank FD – Renewing investments allows the power of compounding to continue and work to your benefit to build a bigger corpus. Hence when your bank FDs are maturing, and do not require the money immediately,
make it a point to renew the FD for a suitable tenure.
5) Avoid prematurely encashing your Bank FD – To maximise returns from your FD, avoid prematurely withdrawing your FD. Premature withdrawals would put brakes on the power of compounding and get in the way of wealth creation.
As a result, you may not be able to achieve your financial goals. Some banks do offer a flexibility. For instance, Axis Bank does not charge premature penalty for FDs of more than 2 years tenure, if they are closed after 15 months,
Even though the interest earned on the Bank FDs is taxable, it is a simple and effective way to start building your investment corpus. You can also invest in a Tax Saver Fixed Deposit.
You don’t even need to go to the bank branch to open an FD. For instance, at Axis Bank, you can open the Digital Fixed Deposit without an Axis Bank Savings Account by providing your basic details, sitting in the comfor of your home, cafe, office or wherever you are. So, book your FD today!
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
