A fixed deposit is an investment and savings strategy that provides security and high returns on deposits. All you need to do is put your money in an FD account till a predetermined tenure of maturity to gain profits on investment with high FD interest rates.
However, to choose the best FD plan, you need to manage your term for maximum gains and avoid early withdrawal. There are several parameters to consider to get the best FD plan. Let us look at four simple tips that can benefit you while applying for FD with high-interest rates.
Tips to Consider Before Investing in FD
While an FD is a stable form of investment with high interest rates, the picture might not be as rosy as it seems. To get the best FD plan, you need to analyze a lot of factors.
Tenure
The first thing you need to consider is the tenure until maturity. In a fixed deposit, time is everything. Hence to get the best FD plan, you need to focus on its term.
You have the flexibility to choose a tenure of as short as a week to 10 years. While longer duration provides more interest, bear in mind that pre-mature withdrawal of the FD will cause a penalty and lower the overall interest rate. Hence, it is better to plan according to any financial events that might occur in the future.
Taxation
To get the best FD plan, remember that the FD interest income is taxable.
A 10% tax is charged on the fixed deposit interest if the annual income through FD interests exceeds INR 40,000 annually. Formerly, the limit was 10,000 in the 2019-2020 financial year. For senior citizens, the minimum taxable amount is 50,000.
TDS is applicable on fixed deposits, meaning financial institutions will automatically deduct the taxable amount. If the fixed deposit income is below the chargeable amount or if your total income through all sources is below the taxable income limit, submit form 15H and 15G to the financial institution and avoid taxation.
Interest Rates
Every FD comes with high interest rates, but not all of them beat the inflation figure. Hence, you need to select the financial institution and invest in a fixed deposit.
Shop around for the best FD plan available. For example, PNB housing provides an effective interest rate of 9.13 per cent on your deposit. Additionally, focus on a longer tenure that will generate higher interest rates.
Interest Payments
If you need money as a regular income, you can opt for a periodic payment or non-cumulative option. It will make sure that you get a stable income for your expenses.
While the total income generation will be less, it will help clear your dues. Depending on the situation, it may be the best FD plan at your disposal. Earlier, financial institutions used to offer annual or half-yearly payments. However, now you can also receive monthly payments. Make sure to learn about the interest payout policy and its frequency.
Conclusion
A fixed deposit offers high FD interest rates. However, to choose the best FD plan, you need to learn about the taxation, tenure, interest rates, and payment frequency. It will help to opt for the right financial institution and plan for your needs.
