Tips to Make the Most of Rising FD Rates in 2023

In our country, the RBI takes decisions related to interest rates. During its June meeting, the RBI increased its key repo rate by 50 bps to 4.9%. The aim was to control inflation and support economic growth. The interest rate in India is projected to be 5.9% by the end of this quarter and spike up to 6.25% in 2023. This is the ideal time to make the most of the rising fixed deposit interest rates to boost your returns. Here are some great tips to do that. 

Choose a Bank Offering Attractive Interest Rates

It is important to choose a reputed bank that is known for offering the most competitive fixed deposit interest rates under both cumulative and non-cumulative schemes. The rate of interest is directly proportional to the returns. Therefore, the higher the rate, the higher the expected returns from your investment. You can use a fixed deposit calculator to understand the relation between FD interest rates and returns. 

Consider a Cumulative FD for Higher Returns

A non-cumulative fixed deposit scheme pays interest on an annual, half-yearly, quarterly or monthly basis. It works for certain investors like pensioners who require periodic payouts.

If you wish to maximise your returns, you must choose a cumulative scheme. In a cumulative fixed deposit, the interest gets accumulated along with the amount deposited. Based on the annual compounding principle, the FD interest qualifies to earn interest on it. When the FD matures (or when you make a premature withdrawal), both the principal and the compounded interest are paid to you. This can help boost the returns expected from your investment. In the current scenario, this approach can help you get higher returns since RBI has spiked up fixed deposit interest rates.

Most importantly, make sure that the chosen bank offers a cumulative FD scheme. Only then you can go ahead and invest in it. 

Learn How FD Interest Rates Are Calculated

The interest rate on a fixed deposit depends on the tenure that you pick. Every tenure has a pre-determined rate of interest. Usually, the interest rate goes up with tenure. Therefore, you can consider investing over the long term to get more interest and increase the expected returns. Over a longer period, the interest will also be compounded more. You can always use a fixed deposit calculator to check how the returns on maturity are determined by the chosen tenure and the interest rate. 

Don’t forget to check the minimum and maximum tenure available for an FD at a bank. A leading bank in India offers a tenure of up to 10 years for Resident Indians and 3 years for Non-Resident Indians. 

Choose a Suitable Tenure for FD Investment

Keep in mind that the growth of your investment depends on the applicable interest rate on a fixed deposit. As a thumb rule, consider dividing 72 by the given interest rate to know the tenure over which your deposited amount can double. For instance, if the FD interest rate is 7.6%, you can expect your investment to double in 9.47 years. For ease, visit the website of the bank and use the fixed deposit calculator to check the expected growth of your invested amount. 

In the above way, consider investing in multiple fixed deposit schemes. This can improve your liquidity which can be highly helpful in the current situation of peaking inflation. Set the tenure of each scheme based on important goals that you aim to finance seamlessly. Before beginning to invest, remember to read all the terms and conditions of the bank and everything about fixed deposit interest rates to get peace of mind.