How to get the most out of fixed deposits?

Firstly let me mention something which all may not know. TDS at 10% is applicable on fixed deposits if the interest earned exceeds Rs 10,000 in a financial year. The tax liability of TDS is determined at the branch level. So to avoid TDS, you can split your fixed deposits, that is, open fixed deposits in different branches of the bank, so that the interest earned does not exceed Rs 10,000 in a particular branch. You could also open fixed deposits in different banks to avoid TDS.

You have the option of either withdrawing the interest earned or reinvesting the same. If you opt for the withdrawal option, the interest earned will be credited to the savings account specified by you on a regular basis. The interest you earn every year will be higher compared to the previous year if you keep reinvesting the interest. On the other hand, if you withdraw the interest, you will earn the same interest every year until maturity.

Most of the Banks allow :-

--  quick Loan against FDs - may require for your short time needs. This may be liquidated as per choice

-- Most of the Banks ( all PSUs ) allow U to get the payment  even before maturity

--- Banks have wide maturity periods .... from one yr to ten yrs - choice is yours as per need

Plan well on about your fixed deposit investments. Split the term deposits into small amounts and deposit them shorter periods to longer periods basing on the different obligations/requirements.

Re-investment plan with 3 to 5 years term is the best option to whom immediate funds are not required. retired people can invest in FDs where they can draw periodical (monthly/qly ) interest for their sustenance.

By splitting into different pieces of small amounts one can make pre mature payments in case emeregencies without loosing interest on a big amount deposited.

Banks also provide loans on these deposits which can be repaid as per our convenience or can be adjusted at the time of maturity.

One should not think by splitting into separate pieces or depositing in different branches/baniks can avoid TDS is a false notion. Instead one can invest in the names of different family members instead of in a single name.

So plan well before making a term deposit

Open an autoinvest account with the bank so that any amount more than 10000 will automatically converted into term deposit. There is never a liquidity crunch as you can always withdraw amount from your autoinvest account online and term deposit would be intact for balance amount. Give ECS instructions for investing monthly a minimum amount say 1000 in some 5 star rated sceme of a good mutual fund. Rate of interest on term deposit would be less but over a time period of 1-2 years you can build up a good corpus. In present scenario also a good rated mutual fund scheme can give you around 12-15% return and long term gains are non taxable too.

This is basic stuff which I do every time while approaching a bank. Take a look at the interest rates offered by different banks before going in for a scheme. You also need to decide the tenure of your deposit. The interest rates offered by different banks could vary. Also, the interest rates for different tenures are different. Interests offered by banks are either calculated quarterly, half-yearly, yearly or at maturity. So, calculate which bank is going to get you the highest interest.

Tax saver fixed deposits give you dual benefits. Apart from giving you an assured return, they are also eligible for exemption under Section 80C of the Income Tax Act 1961. However, TDS is applicable. These fixed deposits have a lock-in period of five years and premature withdrawal is not allowed. You can’t use this deposit as a means to secure loan from the bank and the maximum amount you can invest in this instrument is Rs 1 lakh