Do you want to buy a house? Are you planning to get your dream car this year? A fixed deposit is a good way to earn enough money to meet your financial goals. So, what is a fixed deposit? How does it work? What can it be used for?
A fixed deposit is a smart way to make money over time. You pay a lump sum to the bank, which is locked for a fixed period. Simply put, the fixed deposit is an investment in which the bank keeps your money for a specific period and pays the principal amount back with a fixed interest in return. You get your money back with interest when the term ends. Here are a few simple hacks to make most of your fixed deposit.
1. Compare FD Interest Rates
Banks offer fixed deposits at different interest rates. A little research will give you a better idea of the current FD interest rates. Check the interest rates offered by different banks and use an FD calculator to know the total amount you will receive upon maturity.
The interest rates on fixed deposits will directly affect your earnings. That’s why you must research different offers and open an FD account with a bank that offers the best returns.
2. Choose a Fixed Deposit with Long Tenure
Tenure specifies the period until you can withdraw money from your FD account. A smart way to make the best of your fixed deposit is by choosing a long tenure on a fixed deposit, meaning keeping your money with the bank for an extended period for maximum returns.
It’s simple – investing your money in the FD for an extended period will generate higher returns for you. So, choose a fixed deposit with long tenure.
3. Spread Your Investment
Do not put all your money in one FD account. Instead, spread your investment to minimize your risk. You can open an FD account with different banks for different durations. For example, if you have Rs. 3 lakhs, open three FD accounts with Rs. 1 lakh in each account. Choose different maturity periods for each FD.
4. Avoid Premature Withdrawals
A premature withdrawal means withdrawing your money before the investment reaches maturity. It also means lower returns. Plus, you will invite an early withdrawal penalty. Therefore, once you have opened an FD, do not break it until the term ends.
Banks offer higher interest on an FD with long tenure. For example, the bank might offer 6% interest on 1-year FD and 7% on 3-years FD. However, if you need the money earlier, consider 1-year tenure. You will end up losing more if you withdraw money before maturity.
5. Use Auto-Renewal
The auto-renewal on fixed deposit means you will automatically re-invest after the current investment expires. You don’t have to discuss anything with the bank or spend time researching different offers. Your investment is renewed automatically upon maturity of the current FD. However, not every bank offers the auto-renewal function. So, check it with your bank before investing.