Making the Most of Fixed Deposits

Fixed deposits still continue to feature in the list of safest and simplest financial instruments, and this has been the reason for their popularity amongst investors. Despite this, the scope is often misunderstood, especially when it comes to forming an investor’s asset structure and the execution thereof.

It is safe to assume that the yield might vary for every individual. For example, the general tax treatment would require you to club the interest on fixed deposits earned with your actual income, thereafter taxing the same at 10% to 30%, based on the tax slab in the given assessment year.

This means that although you might be enjoying a comparatively higher fixed deposit rate, your actual return will be comparatively less, if you happen to fall under a higher tax range. Given that this is one of the basic concepts involved while investing your money, we all often over look this often. Nevertheless, despite its post tax implications, it can be your safest bet in moments of market crisis.

Top Tips for Optimum Utilization

  1. Create multiple pools: It is important to spread your investments amongst different fixed deposit accounts; since this would help curb the risk of default. However, the risk involved in low rate money locking would still exist. This is because this type of investment is subject to rate fluctuations, which would ultimately result in you banking at a low rate. To ensure that this doesn’t happen, spread your deposits into different pools in the same bank, each having a different tenure. This will not only balance rate fluctuations, but will also keep you liquid financially.


  1. Make use of currencies: Some banks in the UAE accept deposits in other currencies including dirhams, euros, British pounds and US dollars, amongst others. When deposits are made in such currencies, you can let your money grow and later convert the foreign exchange when the rate of conversion is at its highest.


  1. Tax deducted at source: Many countries have TDS mandates. For example, bank fixed deposit interest is fully taxable in India. To this end, when the amount of return exceeds Rs 10,000, a TDS of 10.3% is applicable. Also, if your total income falls under a higher slab, more tax on such income will become applicable. To avoid the implication of TDS, splitting deposits so that a single one will not reap more than Rs 10,000 a year in terms of interest is a good idea.

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