Moneycontrol
Oct 27, 2017 12:53 PM IST | Source: Moneycontrol.com

Keen to invest in bank FDs? Try these new smaller banks for higher returns

The main purpose of investing in FDs is to enable individuals to earn a fixed rate of interest during the entire tenure of the deposit.

Navneet Dubey @navneetdubey91

Investing in fixed deposit instrument ensures you get a guaranteed return for a particular period of time.

If you are risk-averse investor planning to invest in bank FDs, which offer will give you the best returns? Nowadays, Bank FDs are give you returns ranging from 5 percent to 7 percent. However, some small finance banks have started giving higher returns of up to 9 percent on their FDs. If you are a risk-averse investor and want to save money only in your bank account then in such case you can opt for these FD's to get good returns.

Suppose you invested Rs 1 lakh in fixed deposits scheme of small finance banks which is providing 9% return. After 10 years the corpus will appreciate to approximately Rs 2.45 lakh that is, you will earn a profit of Rs. 1.45 lakh on your initial investments of Rs 1 lakh. The only thing you need to do is to reinvest the (principal plus interest) money from time to time as the tenure of the scheme giving you higher return may be of the shorter term, which may be of two years or even less.

On the contrary, if you invest Rs 1 lakh in fixed deposits scheme of more established bigger banks like AXIS Bank, HDFC Bank, or ICICI Bank which are providing an average return of 6.9%, after 10 years your corpus will get double, that is it a Rs 1 lakh investment will appreciate to Rs 2 lakh approximately. Here again, you need to check the tenure of FD schemes before investing.

Indicative interest rates offered by Commercial bank on FDs (for non-senior citizens):

fd rates

Highest FD rates offered by small finance banks (for non-senior citizens)

fd rates

One should also know that FD schemes which are having a lock in period of 5 years are only considered for tax saving instruments under section 80C of I-T Act. Also while making redemption, the tax is deducted on FD schemes as per the tax slab which can reduce your overall net earnings on your investments. However, this TDS is applied only when your interest income exceeds Rs 10000 as mentioned under the section 80TTA of I-T Act.

If you are investing money in any of the company’s FD schemes, make sure that you have checked companies past performance and the ratings provided to them by rating agencies.

Few things you should know before making investments in fixed deposit schemes:

— Bank FD's are safer as they are covered under DICGC (Deposit Insurance and Credit Guarantee Corporation) where investments are insured for up to Rs 1 lakh.

— Investing in a 5-year FD helps you to get a tax benefit for up to Rs 1.5 lakh under section 80C of I-T Act in a particular financial year.

— Investing money in such secured instrument helps you to create wealth for your short term as well as long term financial goals.

— If your overall income does not exceed your taxable limit then in such case you have to submit a Form 15G (investors below 60 years) or Form 15H (investors above 60 years) to avoid TDS.

— The main purpose of investing in FDs is to enable the individuals to earn a higher rate of interest on your funds as compared to getting returns on a savings account.

— You can deposit the amount only once. If you want to make further deposits in such account, you need to open a separate deposit account.
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