Fixed deposits these days are considered a non-inflation-beating investment, but when markets are down, these are one of the only investments for individuals that are giving returns.
They are financial instruments in which you can deposit a particular amount of money for a fixed period of time, ranging from a few months to several years. During this time, the deposited money earns a fixed interest rate that is usually higher than the interest offered on savings accounts.
Fixed deposits are one of the popular investment options for individuals who want to earn a guaranteed return on their savings. However, in a changing interest rate environment, it can be challenging to optimise returns through fixed deposits. Here are some tips that will surely help you get the most out of your fixed deposit investments:
- Choose the right tenure: If you expect interest rates of FDs are going to rise in the near future by banks, it may make sense to lock in a longer-term FD now to take advantage of the current rates. Especially when central banks raise the repo rate, commercial banks start charging higher from the borrowers, and in some cases, banks start giving higher interest to their FD holders as well.
- Look for special FD schemes: Banks and financial institutions often offer special FD schemes with higher interest rates for a limited period. Keep an eye out for such schemes and invest in them when they are available. Moreover, in the case of government plans, too, like Senior Citizens schemes and Mahila Samman Savings Certificate (MSSC), providing decent returns to which will be effective from 31st March 2023 for 2 years.
- Consider splitting your investments: Rather than investing all your money in a single FD, consider splitting your investments across multiple FDs with different tenures. This way, you can take advantage of higher interest rates for longer-term FDs while still having access to some of your funds in the near future.
- Reinvest the interest: If you have the option to reinvest the interest earned on your FD, consider doing so. Reinvesting can help you earn additional interest on your original investment and can help you compound your returns over time.
- Stay informed about interest rate movements: Keep yourself updated about changes in interest rates by following financial news and updates. It can help you make informed decisions about when to invest in FDs and for what tenures. Investing and reinvesting at the right time would help you optimise your returns for a longer period of time.
Always keeping an eye on what is happening in the world of finance is one of the perfect ways to optimise your returns, not only in the case of fixed deposits but also in other investment scenarios. It is better to get the most out of whatever you are confident with by following a few rules of financial management, like risk appetite, time horizon, and cracking the right time to enter and exit the market.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
Disclaimer: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.