Frank Hubbard has some words of wit to offer, “The safe way to double your money is to fold it over once and put it in your pocket.” Money makes the mare go! We all must have heard about Fixed Deposits and the importance it has for many individuals. Consequently, it is the safest investment opportunity that banks and NBFC’s offer to customers. But here comes the catch! Do you know which bank gives higher rate of interest on fixed deposit? Can the fixed deposit rate of interest beat inflation?
Inflation has the gradual impact of burning a hole in your pockets. Imagine Mrs. Kavita Sharma, a housewife, who is saving money in her FD account for a trip she has planned for Dubai. At the current rate of inflation of 7.6%, she will only be able to get Rs 92.4 for every Rs 100 that she deposits. As is evident from this example, inflation can have a huge effect on your FD’s. It is hence wise to invest the money in options that have returns higher than the prevailing inflation rate.
An 8% interest on a 5 year FD of bank might appear attractive and you may want to deposit your money in it. However, you should be highly concerned if the 8% interest will be adequate to beat inflation in the near future. Will you be getting the same on maturity? The answer is simply NO. It is because you have not taken into account the falling value of the rupee due to inflation and taxes.
Can the fixed deposit rate of interest beat inflation?
It might be ringing in your mind, ‘What is inflation ?’. It is a general rise in the prices of goods and services over a period of time. The value of 100 rupees now will not be the same in a year’s time. Thus, it is important to consider inflation while calculating returns, i.e. the difference between the returns you’ve calculated and the real returns. This defines the purchasing power of money.
Moreover, the interest rates generally offered by banks on FD’s hardly beat inflation. On taxing the income from FD's, its value may fall in respect to the inflation rate. Thus, the best solution to this would be to invest in FD’s for the short-term to take advantage. For depositors in the lower tax slab, inflation will not be that effective. However, for depositors in the higher tax slab, FD’s do not look to be a good option.
The fixed deposit rate of interest will matter highly as it will decide the returns you will get on opening an account. It is thus important to find out which bank gives a higher rate of interest on fixed deposit and it will require some research. There are plenty of online websites that will help you in finding the current rate of interest on fixed deposit and would thus help in making an informed choice.
Equity investment is an attractive option that can give higher returns but it is also the most riskier. FD’s are a stable but safer option in contrast.
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How to maximize your returns from Fixed Deposits?
FD’s are one of the safest and most popular options for investment in India. Returns from FD investment are easily known as the rate is fixed. Ever-increasing inflation and taxation on interest earned remain its drawbacks. There are plenty of ways to maximize your returns on FD’s and we discuss them hereby,
1. Go for Cumulative FD’s: Based on the returns, FD’s can be of two types viz cumulative FD and non-cumulative FD. If cumulative FD is considered, interest is compounded on a quarterly or yearly basis and paid at the end of the FD period. It is wise to invest in cumulative FD as it will give interest on interest income earned over the FD cycle.
2. Never withdraw before maturity: Most banks charge a 1% penalty on the interest rate if withdrawal is done before time. You can deposit a lump sum amount in one FD account as it will help you in withdrawing during emergencies.
3. Compare and choose the best FD: We all know that a high-interest rate will give higher returns on your FD. The rates for FD’s will vary from banks to banks. Go for the one which offers the highest rate.
4. Look for forms 15g and 15h: If your annual income does not fall under a tax slab, you can apply for forms 15g and 15h so as to avoid the TDS being deducted from your FD account. Form 15g is for Senior Citizens above 60 years of age. Whereas Form 15h is for the general category. You can fill this form as per your eligibility and submit it to your bank. It will basically inform your bank to not deduct TDS from your FD account if your income is less than Rs 2.5 lakhs a year.
Benefits of Fixed Deposit for Senior Citizens.
Theodore Roosevelt had said, “Old age is like everything else. To make a success of it, you've got to start young.” Indeed those years explain the wealth of wisdom one gets in life. It is therefore equally important to remember the benefits FD can give to Senior Citizens.
1. Simplified transactions: The unique feature of FD’s is its simplicity of transactions. This makes it popular among Senior Citizens. They like to avoid harassment of regular transactions and paperwork. Banks have thus simplified these points for the FD’s.
2. Assured returns: In comparison with market-linked products like equity or debt stocks, FD’s give a stable and assured return to the FD holders. This makes it safe and reliable among the Senior Citizens.
3. Tax relief: Earlier, banks and NBFC’s charged a TDS on the interest earned on FD’s if the amount was more than Rs 10,000. Currently, owing to the changes in the Income Tax Act, Senior Citizens are NOT taxed on their FD’s if their amount does not exceed Rs 50,000 in a year. Above Rs 50,000 , 1 10% TDS is charged.
4. High-interest rate: Most banks and NBFC’s offer a higher interest rate on FD’s for Senior Citizens in India. It generally ranges from 25 to 50 basis points higher for them. Thus, making it a profitable option to invest.
Fixed Deposit rate of interest for different banks in India.
There is a slight difference in the fixed deposit rate of interest for senior citizens and others. Also, it varies from bank to bank. Check the list below to see which bank gives higher rate of interest on fixed deposit.
|Name of Bank||For Senior Citizens (p.a)||For All Others (p.a)|
|State Bank of India||3.40% to 6.20%||2.90% to 5.40%|
|ICICI Bank||3.00% to 6.30%||2.50% to 5.50%|
|HDFC Bank||3.00% to 6.25%||2.50% to 5.50%|
|Punjab National Bank||3.75% to 6.00%||3.00% to 5.25%|
|Canara Bank||3.00% to 5.85%||3.00% to 5.35%|
|Axis Bank||2.50% to 6.00%||2.50% to 5.50%|
|Bank of Baroda||3.40% to 6.30%||2.90% to 5.30%|
|IDFC Bank||3.25% to 6.50%||2.75% to 6.00%|
|Bank of India||3.75% to 5.80%||3.25% to 5.30%|
|Corporation Bank||3.00% to 5.40%||3.50% to 5.90%|
To put it in the words of Abigail Johnson, "Returns matter a lot. It's our capital." Fixed deposits are an attractive and stable investment option, especially for Senior Citizens. It generally offers a higher return to them and therefore has a range of benefits. However, for those who do not fall in the category of Senior Citizens, there is a list of dos and don’ts like going for the cumulative FD’s, comparing the FD’s available in the market and choosing the one that pays the highest interest, etc. It is best to invest in FD's for the short-term as inflation tends to lower the returns. Inflation is like a devil waiting to eat your cake, which is your income. The bigger is your cake, the better it is!
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