High Return Fixed Deposits and Interest Rates
Who doesn’t want to invest money in a scheme or a plan that yields stable, high and sustainable returns? Of course, everyone does! While it isn’t always possible to accomplish all these objectives at once, one can look for investment avenues with a reasonably high return yield in the form of interest and appreciable stability. A high-return fixed deposit is one of the options to consider. Let’s delve into some aspects of high return fixed deposits and interest rates.
What is a Fixed Deposit?
As most of you would already know, fixed deposit (FD) is a financial instrument that banks and other financial institutions offer individuals and organizations to deposit a specific amount for a fixed duration and pre-determined interest rate.
FDs are usually considered a more secure and safer investment alternative, given the predictable and stable income they offer. Most FD interest rates remain constant throughout the tenure and immune to the external financial environment.
Furthermore, investors can choose to receive interest payouts monthly, quarterly, bi-yearly or annually, depending on their choice and the FD tenure they choose. Usually, FD principals should be withdrawn or reinvested at the end of the FD tenure. However, depositors can even choose to withdraw the principal fully or partially based on their needs and the bank rules and regulations at a certain penalty or interest loss.
High Return Fixed Deposit Options
Banks offer various high-return fixed deposit options from which you can choose the one that best suits your financial needs. So, let’s look at some high-return fixed deposit options. However, you must note that these options may not necessarily be available with all banks. You should check if your bank offers a specific option while investing.
A cumulative fixed deposit is a unique FD type that banks and financial institutions offer. In a conventional FD, the interest your principal amount accrues is paid out monthly, quarterly, or annually. However, in a cumulative FD, your financial institution doesn’t pay the interest regularly. Rather, it is reinvested in the deposit.
Cumulative FDs could be termed high-return fixed deposits as they allow the investor to benefit from the compounding effect. Here, the interest is earned on the deposit and added to the principal. Further, subsequent interest is calculated on the increased amount. Thus, the overall returns emerge much higher than FD with regular interest.
Who can invest in a cumulative FD? People looking for long-term returns instead of regular interest income, can deposit their money in a cumulative FD.
A corporate FD is offered by a company to individuals or institutional investors. It features depositing a lump sum amount for a particular tenure and a pre-determined interest rate. Corporate fixed deposits aren’t different from bank FDs. The only difference is that a regular FD is issued by a bank or a financial institution. On the other hand, a corporate FD is issued by a company or a non-banking financial corporation.
Tax-Saver Fixed Deposit
The FD offers a tax deduction of up to Rs. 1.5 lakhs
per year under section 80C of the Income Tax Act, 1961. However, it should be
noted that this FD has a lock-in period of five years. Thus, once deposited,
you cannot withdraw your principal amount from the fixed deposit. Accordingly,
you should invest sensibly and thoughtfully after considering your financial
needs and goals in the tax-saver fixed deposit.
Note: Specific rules and regulations about a particular fixed deposit should be checked with the respective bank.
How to Choose a Fixed Deposit?
FDs are undoubtedly a popular and beneficial investment option. However, you should make a prudent and meaningful decision based on your financial goals and requirements. Accordingly, here are some factors to consider while selecting the right high-return fixed deposit investment option.
- Evaluate your financial short- and long-term needs and goals. Choose an FD that serves your financial requirements.
- Scan through the various FD offerings of multiple banks and NBFCs. Ensure you also understand the rules and regulations associated with them to make an informed decision that helps you meet your financial goals.
- Assess the various elements of an FD, including the interest rate, withdrawal permissions, interest payout frequency choices, tax implications, etc., before you finalize a particular FD option. Choose FDs that offer flexibility for tenure, premature withdrawals (partial or full), and interest payouts.
- Vet the bank, company, or NBFC’s credit rating before opening an FD account..
- Do not hesitate to seek professional help or advice if you feel overwhelmed by the numerous FD options offered by various banks and NBFCs. Getting a professional piece of advice will help you make an educated choice and optimize the returns from your fixed deposit investment.
Generic Fixed Deposit Interest Rates
Note: Interest Rates as of January 9, 2024
Here are the FD interest rates of some banks in India.
|
Bank Name |
General Citizen |
Senior Citizen |
|
HDFC Bank |
3-7.25% |
3.50-7.75% |
|
IDBI Bank |
3-6.75% |
3.50-7.25% |
|
ICICI Bank |
3-7.10% |
3.50-7.60% |
|
Punjab National Bank |
3.5-7.25% |
4.00-7.75% |
|
Canara Bank |
4-7.25% |
4-7.75% |
|
RBL Bank |
3.5-7.80% |
4-8.30% |
|
Bank of Baroda |
3-7.05% |
3.5-7.55% |
|
Kotak Mahindra Bank |
2.75-7.20% |
3.25-7.70% |
Banks with the highest FD interest rates include the following.
|
Bank Name |
Fixed Deposit Tenure |
General Citizen |
Senior Citizen |
|
Bandhan Bank |
600 days |
8.00% |
8.50% |
|
YES Bank |
18 months less than 36 months |
7.75% |
8.25% |
|
IDFC First Bank |
1 year 1 day – 550 days |
7.50% |
8% |
|
HSBC Bank |
732 days to less than 36 months |
7.50% |
8% |
|
RBL Bank |
24 months to less than 36 months |
7.50% |
8% |
Source – Economic Times
How to Calculate the Interest Rate of a Fixed Deposit?
Some people would like to delve into the technicalities of a fixed deposit. The most important part of it is calculating its interest rate. So, let’s look at how banks calculate the simple and compound interest of a fixed deposit.
Simple Interest
Simple interest is calculated only on the principal amount. The interest remains constant throughout the FD’s tenure and the bank pays it at regular intervals. Let’s look at an example of how banks calculate simple interest on a principal amount.
· Principal Amount (P) – Rs. 2,00,000
· Rate of Interest (R) – 7%
· Tenure (T) – 2 years
Simple interest (SI) = (P*R*T)/1000
SI = (2,00,000*7*2)/100 = Rs. 28,000
Thus, the SI on a principal of Rs. 2,00,000 on 7% interest for two years is Rs. 28,000.
Compound Interest
Compound interest is calculated on the principal amount and also the accumulated interest. Hence, it provides higher returns on fixed deposits with simple interest. The bank or financial institution offering the fixed deposit compounds the interest at different frequencies like monthly, quarterly, semi-annually or annually. Here’s more to how compound interest is calculated on a fixed deposit.
· Principal Amount (P) – Rs. 2,00,000
· Rate of Interest (R) – 7%
· Tenure (T) - 2 years
Thus, you can calculate compound interest (CI) with the following formula.
A – Total Amount
P – Principal Amount
R – Interest Rate
N – Number of times the interest gets compounded every year
T – Time Period in years
Now, let’s say the interest will be compounded annually. Thus, N = 1.
A = 2,00,000 * (1+0.07/1)) ^ (1*2)
A = 2,00,000* (1.07) ^ 2= Rs. 28,980
So, for a fixed deposit with Rs. 2,00,000 at an annual CI of 7% (compounded annually) for two years, the interest earned is Rs. 28,980.
What is a Fixed Income Plan?
Fixed-income plans or fixed-income securities provide guaranteed returns on investments. These plans generate returns periodically with a constant interest rate, regardless of the market situation. The bank calculates the fixed-income security’s final value at the time of maturity before it issues the plan. The investor is made aware of it while investing the money. Fixed-income plans are a popular investment form for risk-averse investors looking for secure investment returns with some additional income as well.
Some common types of fixed-income securities include the following.
Debt Mutual Funds: In these funds, accumulated corpus for investment is used in government bonds, money market
instruments, corporate bonds, etc. They offer a higher return on investment than fixed deposits and savings accounts.
Exchange-Traded Funds: These funds invest in debt securities that generate regular and fixed returns. They provide stability as the investors receive returns periodically at a fixed rate of interest.
Bonds: Bonds are issued by governments or companies to fund various projects, routine operations, equipment purchases, etc.
Money Market Instruments: Instruments like certificates of deposits, treasury bills, commercial papers, etc., are offered at a fixed interest rate. These are offered for a short duration. The maturity period doesn’t go beyond a year.
Public Provident Fund (PPF): PPF investments are exempt from tax deductions and offer a higher interest rate than regular savings plans. Since it involves the central government, the risk involved in the investment is zero.
Senior Citizens Savings Scheme: As the name suggests, this scheme aims to provide financial security to India’s senior citizens. People who are 60 and above can invest under this scheme. It is subject to a considerable interest that the finance ministry establishes.
Final Words
We hope the above gave you adequate insights into high-return fixed deposits and interest rates. We do not promote fixed deposit schemes of any of the banks, no matter whether we’ve listed them above or not. The above information is generic and only for reference purposes. We strongly recommend you check specific information with the respective bank before investing your money.
Disclaimer: The contents of this article should not be construed as tax or financial advice. Readers should seek advice from their tax or financial advisor before making any investment decision.