Fixed deposits are some of the most secured investment options which help you multiply your assets and save money. However, even though FDs aren’t affected by market fluctuations and other uncertainties, it is most crucial to understand exactly how you can ensure consistent, guaranteed, and maximum returns.
Tools can help you go as far as calculating fixed deposit interest amounts, researching FD interest rates of all banks and NBFCs, and drawing up a maturity amount, but understanding the perspective with which you can strategize is imperative. Here’s your chance to analyse all the variables that affect fixed deposits and how those variables can assure consistent and guaranteed returns for your future fixed deposit.
Variables that Affect Fixed Deposits
FDs are governed by five major factors that hold enough individual prowess to upturn an investor’s strategy should even one variable be out of alignment. Hence, for your understanding, a break-down of all these variables is as follows.
1. Deposit Amount
The amount that you commit to an FD at the dawn of your investment journey is called a deposit amount. It is this amount to which the interest amount you earn is added depending on your desired payout frequency.
2. Rate of Interest
The interest rate is the returns percentage that a bank or NBFC can offer you to add to your deposited amount. Calculating fixed deposit interest amounts drawn from the interest rate is based on the tenor, type and category of the FD you pick. It is to be duly noted that the FD interest rates of all banks and NBFCs differ. Hence, drawing various maturity and interest amounts to the table.
The tenor is the duration for which you commit your money to a fixed deposit. The tenor along with the interest rate, the fixed deposit type and category determine the returns you will receive towards the cusp of your FDs life added to the initial deposit amount.
4. Fixed Deposit Type
You can choose the type of FD you’d like to opt for during the booking process of your fixed deposit. The only difference between both types is that cumulative FDs bring you a collective interest return at the very end of your tenor, while non-cumulative FDs offer interest payouts over a monthly, quarterly, half-yearly and annual schedule. The difference between the two might seem trivial. However, the impact it can have on your returns is colossal.
5. Fixed Deposit Category
Fixed deposit categories mainly exist to establish in what category an investor can be classified. The classification criteria are non-senior citizen, senior citizen and NRIs, while other categories include legal-fictions or non-human entities such as companies, societies, etc.
When it comes to the impact of these categories, non-senior citizen and NRI groups don’t differ greatly, but it is the senior citizen category that experiences a considerable distinction from the other two in calculating fixed deposit interest rates and taxation.
6. Fixed Deposit Returns
Fixed deposit returns are considered alternative sources of income according to the Income Tax Act of 1961. Hence, returns above ₹40,000 - ₹50,000 will start to be levied with 10% - 20% taxation. However, returns below ₹5,000 per year will not be taxed.
How Can These Variables Guarantee Assured and Consistent Returns?
1. Investable Amount Compounded
The deposit amount that you invest can greatly affect the returns you bear from your fixed deposit. Choosing your interest payout to come your way on a monthly or quarterly basis can give you another option of reinvesting the interest return you receive. Here, your interest amount becomes a deposit amount and hence, you will find yourself earning interest on a deposit amount which is essentially a compounded interest amount.
2. Attractive Interest Rates
It is imperative for you to tally and compare the FD interest rates of all banks and NBFCs in order to pick the one that will bring you the highest interest rates. Calculating fixed deposit interest rates along with the tenor and deposit amount with the help of an FD calculator can give you the opportunity to compare and analyse a variety of maturity amounts and interest amounts inferred from various FD interest rates of all banks and NBFCs that appeal to you.
3. Long or Short Term Investment
Some banks and NBFCs offer you tenors as short as 7 days and as long as 10 years. Making that choice wisely is imperative, since this serves your financial goals greatly. Long-term non-cumulative FDs assure great returns should you decide to reinvest. Short-term cumulative or non-cumulative FDs can fit your financial plans if they include saving your capital with additional returns.
4. Payout Schedule
The payout schedule is directly associated with cumulative and non-cumulative FDs. Cumulative FDs will bring you a collective interest return at the end of your FD tenor, while non-cumulative FDs can bring you multiple returns as per the payout schedule you choose. For example, a cumulative return on a deposit amount of ₹1,00,000 and an interest rate of 7.80% with a tenor of 5 years would be ₹1,39,000 while for a non-cumulative return, it would be ₹1,45,577.33.
5. Investor’s Category
As an individual investor, you may fall under categories such as non-senior citizen, senior citizen and NRI investors. Before investing in an FD, you must consider one important fact: senior citizen investors can get interest rates higher by 0.25% for FD interest rates of all banks and NBFCs. Hence, you may either book an FD as a senior citizen or book an FD for a elderly family member to maximise your returns.
An FD is a secure and safe way of investing and saving your capital with assured and consistent returns. Its benefits shine for all those with a smaller risk appetite and also for those who wish to hit two birds (savings and investments) with one stone. There is massive room for growth and to achieve all your financial dreams and ambitions, be it long-term or short-term. Hence, with a calculative strategy, FDs can be your biggest boon.