Fixed deposit or term deposit has been a popular investment option since years. It gives assured returns and is considered as an ideal investment option especially for beginners who may or may not understand the highly volatile nature of other forms of investment options.

Fixed deposits not only yield returns on the investments but also keep the principle amount safe. You can even start a fixed deposit with amount as low as Rs. 10,000 for a period ranging from 7 days to 10 years.

If you are waiting to invest in fixed deposit, as a first-time investor, then this is the right time to do so, but there are few things you should know that will help you manage your fixed deposits better.

1. Laddering your deposits: The return on fixed deposit depends on the interest rates decided by the bank. These rate changes with any change in the monetary policy by the RBI. It is always prudent to split your investments with a portion of it invested in the fixed deposit. The amount of money in fixed deposits can be varied depending upon the prevalent interest rate in the market. For example, if you are planning to invest 3 lakhs, then make a fixed deposit of Rs. 1 lakh each for one, two, and three years.

Laddering the investment is also helpful in case of any emergency. If you have only one fixed deposit of Rs. 3 lakhs, then you will have to break it to withdraw funds and thereby lose all the interests earned. Whereas if you have 3 fixed deposits of Rs. 1 lakh each, you may withdraw funds depending on the requirement and enjoy interest on the remaining fixed deposit(s).

2. Tax deducted at source (TDS) on interest income: The interest on your fixed deposit is taxable. If your interest income exceeds Rs. 10000 per annum then you are liable to pay TDS at the rate of 10%. If your PAN is not updated in your account, then TDS is increased to 20%. Your tax liability does not end here. If you are falling in the higher income category, then you have to pay more tax on this income.

Also, if you do not fall in the taxable income bracket then you can submit 15G/H to avoid TDS or claim it back if it is already deducted. 

3. Overdraft facility: Emergency comes uninvited, but you can be prepared for it. Fixed deposit is a great way which will render you all geared up for any kind of emergency. Apart from the facility to withdraw funds anytime, you can take a loan or overdraft facility on your fixed deposit. Premature withdrawal of fixed deposit can fetch you a penalty of 1%. If you need funds for a shorter duration, then it is advisable to take loan or overdraft facility against your fixed deposit. The rate of interest on loan against fixed deposit is few percentages higher than the interest rate of fixed deposit. You can even take a credit card against your fixed deposit.

You can boost your return on investment on your fixed deposit by keeping these three things in mind.  Invest smart, invest young.

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3 responses to “3 Ways to Better Manage Multiple Fixed Deposits”

  1. ASHOK KUMAR. B says:

    Mr J.C Thukral this exemption is applicable only from next FY 2018-19. Am I correct?

  2. ASHOK KUMAR. B says:

    Premature withdrawal also reduces the interest amount to the rate applicable for the period run less 1% penalty. That is if you were being paid 10% and after 2 years if you close then the rate may be less say 9% less penalty 1%=8%. Besides if you have collected quarterly interest for 2 years at 10% the difference will also be deducted from the principal.

  3. J C Thukral says:

    Income tax exemption on interest income is 50,000 and not 10000 as discussed. Plz update the article.

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