How to Maximise Your Returns from Fixed Deposits

When it comes to investments, you can’t take your eyes away from returns. The return you receive from them helps you achieve your financial goals such as letting your kids fulfil their educational aspirations, buying a house, accumulating funds for retirement, and so on. So while receiving the required amount is paramount to achieving your goals, ignoring capital safety is not good. The focus, therefore, shifts to fixed deposits that ensure your money is safe while also allowing you to reap good returns over time.

The best part is that the return rate remains fixed, cushioning you from the ups and downs many investments go through due to market fluctuations. While that holds, there’s always a need to strategise your fixed deposit investments so that you earn more. So, if you want to know how to maximise FD returns, you’ve come to the right place! In this blog, we’ll shed light on the strategies to increase FD returns. Let’s get started!

Factors to Consider to Maximise Fixed Deposit Returns

There are multiple factors to consider while making your fixed deposit viable in today’s times where inflation is constantly reducing the value of money. Here’s a list of the factors you must consider. 

Choose the Right Bank

Choosing the right bank is the first step to maximising fixed deposit returns. Now, how do you decide which is right? Means, on what parameters should you evaluate banks? The first factor to consider is the interest rate of different banks. Check which offers the highest interest rate for the time you wish to stay invested in a fixed deposit. Secondly, look at banks’ financial stability such as the pattern of profit, balance sheet and other key details. You can check all these online. If you are an existing bank customer, check whether it offers a preferential interest rate. Most banks, in a bid to retain customers, offer preferential rates to existing customers on their fixed deposits. This is arguably the best answer to your question - how to increase FD returns?

Opt for Strategic FD Tenures

The tenure plays a massive role in deciding your fixed deposit interest rate. Usually, the tenure of around 3-5 years yields investors the maximum interest rate. However, that does not necessarily mean you can  accumulate the amount required to fulfil your financial goals. Your surplus money also decides how long you should stay invested. After all, your investment amount and tenure add to your earnings besides the interest rate. 

Use the fixed deposit calculator online to figure out your earnings across periods. Enter the prevailing interest rate to know different earnings estimates. This will help you decide the right tenure for your financial goals. You can also have multiple fixed deposits with both short and long tenures. It will ensure you will have an FD maturing when you need liquidity, potentially preventing premature withdrawal and the penalty associated with the same. At the same time, you can optimise investment returns. This strategy is known as fixed deposit laddering. 

Let’s consider an example to understand the same.

Example - You have a savings of INR 6 lakh to invest in a fixed deposit. You can consider dividing the investment amount into say three parts - 1 lakh for one year, two lakh for three years and three lakh for seven years. As per the current times, the interest rate for 1 year can be 6%, 9% for 3 years and 6.50% for 7 years.

Note - Calculations are based on a quarterly compounding basis.

Cumulative vs Non-cumulative Fixed Deposits

Fixed deposits come with cumulative and non-cumulative versions. While cumulative FDs allow interest reinvestment, non-cumulative FDs pay interest to investors at regular intervals. Choosing between the two depends on your requirements. So, if you want to raise your FD earnings, prefer a cumulative FD over a non-cumulative FD. In case you seek regular income, choose non-cumulative fixed deposits. 

Explore Special FD Schemes

Senior citizens, women or special groups can get fixed deposits with preferential interest rates. Also, there’s no denying the possibility of higher fixed deposit rates during the festive season. 

Keep an Eye on Interest Rates and Make Adjustments

As an investor, you should always monitor fixed deposit interest rates. You may have booked an FD, but later, you can always find a bank offering FDs at a higher interest rate. You can thus maximise by booking another FD at a higher rate. This will help investors achieve their financial goals.

Summing Up

The answer to - how to earn more interest in FD - lies within the above information. It all starts with finding the best fixed deposit interest rate across banks. As an investor, you should always look to optimise your fixed deposit portfolio by having multiple deposits with strategic tenures. After all, it's about achieving your financial goals. Being flexible and making subtle adjustments to the portfolio helps it stand out.