How to Consider Whether Reinvesting Your Maturing FD is a Wise Move?
Fixed deposits are financial instruments that allow you to reap maximum benefits if you let them mature for the entire tenor. Once the tenor is nearing completion, you may wonder whether you should continue to invest in FDs and renew your investment, or utilise the same amount to start a new investment. Before you decide, check the current interest rate and the benefits you receive on renewal.
Take a look at the 3 things you should consider to ensure you take the right approach towards FD renewal.
Look for market offerings and competitive interest rate on FDs
When a fixed deposit reaches its maturity, it either gets auto-renewed based on your pre-decided preference or the financial institution you have invested with fetches your consent regarding the way forward.
Since FDs fetch maximum benefit when treated as long-term investments, the tenor for maturity is usually a minimum of 3 years.
By the time you get the matured sum in hand, a lot may have changed in the market owing to RBI policy alterations, inflation, and economic factors. These changes are likely to alter FD interest rates too.
However, renewing your FD with the same financial institution allows you to benefit from a good interest offering irrespective of the present market condition.
In case you are unsure of whether to reinvest your matured sum, you can take your time to decide. Usually, you can renew your FD with the same financial institution up to a month after the maturity date.
You have the provision to begin the renewal at the back date and you will also get the interest claim on your fixed deposit for those absent days.
While you are considering renewal, you can also check other financial institutions’ FD interest rates to see if you are gaining on an increased offering with respect to your present financial institution.
See if you gain by switching FD variants
Fixed deposits are of two types: non-cumulative and cumulative. Say you had parked a sum of Rs.1 lakh on a cumulative FD for 5 years at the age of 55.
On maturity, you gained Rs.1.50 lakh as a matured sum. Now, at the age of 60, you have retired and want a regular income on your savings.
In this case, you can renew the FD with your existing financial institution at an interest rate that is at least 0.25-0.35% higher than the normal FD interest rates because you are now a senior citizen and are offered a higher interest. Â
At the same time, you can shift your cumulative FD to a non-cumulative variant to access the interest payout every month to mimic a regular income.
Financial institutions like Bajaj Finance will offer you the flexibility to select the compounding frequency on your non-cumulative FD, so that you get maximum return in hand every month.
Apart from that they offer FD interest rates as high as 8.20% on your investment, which is regarded as one of the best offering by a financial institution in India.
Take into consideration the tax and other benefits you gain on FDs
FDs are highly secure and trustworthy investment options, so you not only gain from the risk-free high interest parameter but also when it comes to saving on taxes.
You can claim tax deductions of up to Rs.1.50 lakh under Section 80 C of the Income Tax Act in lieu of your FD investment.
The interest gained on the same is free of tax up to Rs. 5,000 in one financial year when you have invested in a company FD. Any earnings beyond that are taxable according to your income bracket.
Alongside the tax benefits, you can also use your FD investment to avail a loan. Instead of breaking your FD when faced with an urgent need of money, you can pledge your investment as collateral to access a loan on low interest, while your FD stays unaffected and intact all through the loan tenor.
So, opt for a fixed deposit renewal by taking into account all the benefits that you can get by doing so.
Category: Investing
