Top 4 Tips For Investing In Fixed Deposits – Plan Your Deposits
It might be a perfect time to open a fixed deposit, and lock in at high levels, before the cycle of interest rate turns. We have list out major things you want to know before capitalizing in these fixed income options -
Fixed deposits are completely safe -
Do not think that your money is entirely safe when you invest it in fixed deposit. When corporate deposits are unguaranteed loans, which do not guarantee anything to capitalizer, in the matter of banks, Credit Guarantee Corporation, and Deposit Insurance ensures deposits of more than 1 lakh per consumer around all branches of bank.
Therefore, in case you have Rs. 3 lakh to capitalize, divided it in three-four capitalizations around various banks. When this will protect your money, an included benefit is that in case you require the amount in an emergency you will not need to break the complete deposit. This means you will need to pay the premature withdrawal penalty just for the sum, which you require, also as the rest of money keep increasing.
Ladder your capitalizations -
Spreading capitalizations around various banks regulates the default risk, however what about locking risk in your money for long duration at less rates? Fixed deposits are inclined to uncertainty because interest rates attend to shift in multi-year cycles. To prevent this, create a fixed deposit’s ladder that has various tenures.
In case you have Rs. 4 lakh to capitalize, divide the amount in 4 deposit groups of Rs. 1 lakh for each 1, 2, 3, and 4 years. When the one-year deposit matures, reinvest the maturity return in four year Fixed deposits. Because of this the lows and highs in interest rates will sustain over a period of time. This will also confirm liquidity because you will need one deposit maturing each year.
Premature withdrawals invite punishment -
Make sure you get exact tenure while investing in fixed deposit. Locking up cash for long duration, and then making premature withdrawal means lesser returns. In case your bank is serving 9% interest on 1-year deposit, and 9.5% on 5-year term, do not get tempted to go for long duration in case there is a probability that you might require money earlier.
In case you opt for five years fixed deposit and then break it after 1 year, you will get rate applicative to 1-year deposit. Bad, you might be slapped with premature withdrawal penalty, which will lesser the rate by 1% point. Therefore, in spite of getting half a % point, you might end up losing one percentage point. To prevent this, go with ladder system stated earlier.
TDS is just an interim tax -
The interest attained on your fixed deposit is completely taxable. In case interest amount transcend Rs. 10,000 in one year, the corporate or bank house will subtract 10.3% tax at source before you receive the amount. Your tax liability does not end here. In case you are in higher income bracket then you will need to pay much tax on this revenue.