In order to get the most from your FD, you need to understand the relation between fixed deposit interest rates and compounding. Apart from interest rates, certain fixed deposits offer substantial tax benefits as well. The article will talk at length about these schemes with examples on how to plan your investments so that you get higher returns with the same amount. Read on to take a look at a few measures that you can take to gain higher returns from your FD:

1. Go for the Cumulative Option

Deposits are of different types, cumulative and non-cumulative. Under the first option, the interest is not paid out on a regular basis, but on maturity. In the second option, the interest is paid out at quarterly, half-yearly, or annual intervals.

Here is an example. 

Bank A offers 7% on investments made in 5-year FDs. The interest is compounded every quarter for the cumulative FD. 

If you invested Rs. 1,00,000 in the non-cumulative scheme, you would be paid Rs. 7,000 each year as interest. Your total earnings for 5 years would be Rs. 35,000.

On the other hand, if you invested Rs. 1,00,000 in the cumulative scheme with quarterly compounding, your maturity value after 5 years would be Rs. 1.43 lacs.

A comparative table will show the extra gains from the cumulative option:

Option Principal

(Rs) (A)

Maturity + Interest (Rs) (B) Total gain (Rs) (A-B)
Cumulative FD scheme (1) 1,00,000 1,43,000 43,000
Non-Cumulative FD scheme (2) 1,00,000 1,35,000 35,000
Difference (1) – (2)     8000
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So, your earnings would be Rs. 1.43 lacs less Rs. 1 lac or Rs. 43,000. This is Rs. 8,000 more than the non-cumulative option.

2. Invest Online

If you invest in an FD online, you get extra interest. Search for the best FD rates offered by companies and banks before you invest in them. Determine the credit rating of the company FDs and opt for companies with AAA ratings. If a company offers 8.75% interest to individuals opting for offline FDs, you get 9% for online investments.

3. Get Tax Benefits Under Section 80C

There are certain tax-saving FDs which not only offer safety of principal and stable returns, but you get a one-time tax benefit of Rs. 1.5 lacs under Section 80C of the Income Tax Act. Choose the cumulative option for higher returns.

4. Calculation of Returns

To find out how much you can earn from FDs offered by companies or banks, use the fixed deposit interest calculator online. Just enter the principal amount, tenure, and the interest rate to determine your earnings. 

Earn the Most from Your FD

You can earn higher returns from your FD, provided you follow these simple suggestions. Before investing, find out whether you need regular income or growth of capital. If you are looking for tax savings, then go for tax-saver FD offered by banks. So, do your homework, find out what you need, choose the right bank or company and watch your investments grow while you save tax!