In the recently concluded Monetary Planning Committee (MPC) meeting of the Reserve Bank of India, the REPO and Reverse REPO rates were unchanged at 4% and 3.35%, respectively. While this means that there will be no immediate increase in loan rates, it also means that the fixed deposit rates will not increase anytime soon.
Since fixed deposits are one of the most preferred investment instruments in India, lower FD rates mean lower returns for investors. However, you can follow the tips mentioned in this article to increase your fixed deposit account returns. Scroll down to know more.
5 Tips to Maximize Fixed Deposit Returns in 2022
1. Move beyond the Ordinary
Corporate housing finance institutions and non-banking financial companies have recently emerged as a strong alternative to conventional public and private banks. A corporate institution generally follows a lean model and has a targeted customer base. This allows them to provide higher FD rates in India. E.g. while most bank FD rates hover around 5% to 7%, corporate FDs offer up to 6.95% interest rate on fixed deposit accounts. However, it is wise to check the corporate institution’s credit rating before investing your hard-earned money. Look for ratings above CRISIL FAA+ or CARE AA to invest securely.
2. Invest in Short-Term Fixed Deposits
FD rates in India are dynamic, meaning they change quite often. A quick scan of FD rates shows that the short-term deposit rates are hiked first whenever there is an increase in the FD rates. Hence, by investing in a short-term deposit, you have the option open to get better rates shortly. Also, if you lock your money in a long-term FD and withdraw it before maturity, the financial institution will levy a penalty, reducing the effective rate of interest. But, long-term FD rates are usually higher than short-term rates.
3. Ladder Your FD Investment
Smart investors invest in multiple fixed deposit accounts to create the right mix of liquidity and returns. FD laddering refers to a money management process in which an investor divides the total investible amount into several fixed deposit accounts with varying rates and maturity terms. This ensures that you get some money at regular intervals.
4. Invest in Cumulative Fixed Deposits
Cumulative fixed deposit accounts provide stability and growth to investors. A cumulative FD account returns the principal and interest at the end of the maturity term. Hence, if you invest in a five-year FD, you will get the total amount after five years. Generally, cumulative FD rates are between 0.5% and 1% higher than non-cumulative FD rates in India.
5. Compare Financial Institutions
In India, five types of financial institutions provide the fixed deposit account opening facility. They are – public sector banks, private banks, small finance banks, housing finance companies, and non-banking financial institutions. Generally, non-banking financial institutions and housing finance companies offer the best FD rates in India. However, you should evaluate the financial institution’s reputation and ease of account opening before investing.
Now that you know the five best tips to maximize your fixed deposit account returns, it’s time to use this knowledge to increase your returns. A fixed deposit is one of the best financial instruments to get stable returns, and the tips mentioned here can increase its value faster.