Fixed Deposits are popular investment instruments in India. They have been around for decades and are a favourite for those with a low to moderate risk appetite. Guaranteed returns, reliability, and ease of opening and liquidating are reasons for their popularity.

The investment strategy deployed while investing in a Fixed Deposit Account is important in determining the quantum of your returns. With the right approach, you can maximise the returns you earn. Consider the following strategies to follow while investing in these accounts:

Look beyond traditional investments

You can now look beyond traditional investments offered by banks and invest in Corporate FDs instead to earn higher interest income. Their interest rates are 1% to 4% higher than Bank Deposits, and the returns earned over the maturity period make a difference. A higher interest rate boosts your savings if your investment corpus is high.

Assess banks on credit ratings

The credit ratings issued by CRISIL and ICRA are important indicators of FD reliability. The higher the instrument’s rating, the safer it is to invest. The highest-rated deposits may offer slightly lower returns than the rest. Do not overlook safety and reliability to maximise returns. Select instruments with high credit ratings and assess them based on your objectives and risk appetite.

Consider Cumulative FDs

New investors are often unaware of the power of compounding while investing in Deposit Accounts. While periodic interest payouts seem attractive, getting them at maturity ensures your savings and interest continue to compound. You can grow your earnings and effectively earn more in this manner.

Consider Loan Against FD

Emergencies arise without warning. While it may seem easy to resort to your FDs for help, premature liquidation bites into your earnings from the sum invested. You also pay a penalty for premature withdrawal. An overdraft facility cushions you against these emergencies, allowing you to borrow from your Term Deposit and pay interest only on the sum used based on the number of days.

Deposit Insurance

With many banks struggling and undergoing crises, all asset classes come with some risk. FDs are not 100% risk-free. It has a Deposit Insurance of Rs. 5 lakh. To minimise the risks involved, try to restrict the amount per family member to Rs. 5 lakh. Choose the either or survivor option while opening the account on the Banking app for easier liquidity.

Select the tenure carefully

Depending on whether your goals are for the short-term or long-term, decide on the tenure. Many banks offer more interest for a longer tenure. Thus, it may seem wise to opt for them. However, historically, the interest rates rise if inflation rises. 

Thus, investing in Deposit Accounts for shorter tenures and reinvesting when the interest rates rise is a good idea. You need to open the Net Banking application on your smartphone, search for the investment option, check the interest offered, and open a Deposit Account from anywhere.