Want to get maximum return from your bank FDs? Follow these steps
Fixed deposits have long been considered one of the safest investment options by Indians. Although the return on FDs is lower than other investment options, they are virtually risk free. Your money stays safe with the bank while you continue to earn interest. However, the recent economic downturn due to the Covid-19 pandemic caused FD rates to correct and they are currently at an all-time high. So how do you make sure you improve your yields in such a situation? Here we look at some of the strategies that could help you improve your performance on FDs
Compare all options:
While almost all major banks’ FD return rate has shown some correction over the past few months, there are many smaller banks that are offering a better rate. So, before settling on any FD program, please do some market research on all available options. Compare FD bank programs with FD offers available for businesses and choose the options that meet your needs. Each plan has its own risk, term and interest rate and as an investor your goal should be to select the plan that offers the best return with minimum risk. The rating provided by agencies like CRISIL could help you better understand the pros and cons of the schemes.
Opt for short-term diets:
Short-term investment options will give you the flexibility to move your funds around as needed. The yield on the FD is currently at an all-time low and locking your capital into a long-term pattern could prevent you from putting your money into a better pattern in the near future.
Diversify your portfolio:
Having a diversified portfolio allows investors the flexibility to limit their risk in difficult times. Although FDs are generally considered a risk-free option, there is still a degree of uncertainty. So, instead of going for one big FD and putting your money in one scheme, you can split it into several smaller ones to allow you to invest a bit more safely. This will allow you to have different rates of return, tenure durations and risk limits.
Reinvest your interest:
Reinvest the interest earned on the FDs to give your sum the benefit of compounding. Interest when reinvested increases your capital, bringing more returns to the next cycle
Floating rate FD:
Floating rate FDs offer the flexibility of dynamic interest rates. In this scheme, the interest rate is not fixed and fluctuates with a reference rate that is adjusted regularly. Floating FDs allow you to enjoy the benefits of fluctuating interest rates without the need to close and rebook your existing FDs. Rates are decided based on the movement of Bank Treasury Bill rates which are auctioned every two weeks with a mark-up that resets once a year.
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