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Tips for Financial Planning With Fixed Deposit

by janeausten
Fixed Deposit

Investing in bank fixed deposits (FDs) can enhance your investment portfolio with negligible risks. FDs benefit you with guaranteed returns, flexibility, and stability. Find the tips that can help you in financial planning with FDs.

Determine Your Financial Goals

First, you need to determine your financial goal. Your FDs can help you achieve your short-term or long-term financial goals with proper planning.

Use FD Calculator 

You can know your returns even before investing your money using the FD calculator. Monthly interest or total interest determined using a calculator can help you choose the amount that you should invest. You can know the suitable tenure to get the desired returns. 

Ladder your investments

You can invest in multiple FDs to improve liquidity and gain consistent returns. You can ladder FDs with different tenures to maximise returns. For example, if you want to invest Rs. 4 lakhs, you can make 4 FDs of Rs. 1 lakh each with different tenures, say two years, three years or others. Further, you will enjoy liquidity. You need not withdraw the entire amount from a long-term FD and lose interest. Instead, withdraw from short-term FD to meet instant financial needs. 

Prefer Cumulative FD for Higher Returns

You can invest in a cumulative FD to increase your returns with the power of compounding. It reinvests the interest amount every year. You will receive the interest at maturity with the principal. The cumulative FD is suitable for depositors who do not need a regular income.

Avoid withdrawal before maturity

You must choose the right tenure right while opening a fixed deposit account. Premature withdrawal of long-term FD means lower returns. If you know you will need money soon, you should choose a short-term FD. If you open a 5-year fixed deposit and withdraw it after one year, there will be a penalty. The bank can lower the interest rate. To avoid this, ladder your FDs.

Tax Saving 

FD interest is fully taxable depending on the depositor’s tax slab. It is considered a part of your total income. Also, under section 194A, Income Tax Act, 1961, you need to pay TDS @10% if your total interest earned is more than Rs. 40,000 in a year (Rs.50,000 for senior citizens under Section 80 TTB). 

The depositor can submit Form 15G (for Senior Citizens) / 15H (for all other individuals) to save TDS on interest. If you do not fall under any income tax slab, you can submit Form 15 G/H. Make sure you submit the form at the beginning of the year. It will stop your bank from deducting TDS on the FD interest. If you forget to submit these forms, you can file an ITR to claim a refund of TDS. Interest income from FDs is taxable on an accrual basis. If you have a cumulative FD for three years, you will receive interest at the end of three years, and the depositor is liable to pay tax on the accrued interest every financial year. 

Thus, get a robust investment portfolio with fixed deposits that can fulfil your financial goals.

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