A recent SEBI survey found that 95% of Indian families trust fixed deposits to grow their savings.
In a financial world where the stock market and real estate can be unpredictable, fixed deposits are a reliable investment option due to their guaranteed returns, minimal risk, and ease of use.
However, different banks and financial institutions offer different interest rates, tenures, and additional benefits for fixed deposits. Some may have hidden charges, while others might penalise you for early withdrawals. Therefore, to maximise returns from your fixed deposit, you need to make smart choices.
Here’s a simple guide to help you pick the best fixed deposit for maximum returns.
1. Compare Interest Rates Across Banks
Before investing, research fixed deposit interest rates from different banks for various tenures.
For instance, small banks may offer rates of 6-7% for certain tenures, whereas larger banks might offer higher rates of 7-8.5% for the same period.
Always check the latest rates on the bank’s official website and invest accordingly.
2. Choose the Right Tenure
Fixed deposit tenures typically range from 7 days to 10 years, and interest rates vary accordingly:
- Short-term FDs (less than 1 year): Offer lower interest rates because banks don’t want to lock in money at high rates for short periods.
- Medium-term FDs (1-5 years): Banks usually offer the highest interest rates as they balance your returns and their liquidity requirements.
- Long-term FDs (5+ years): Often have lower interest rates than medium-term fixed deposits because banks don’t want to commit to high payouts for an extended period.
While shorter tenures allow for quicker access to funds, longer tenures may offer higher interest rates. Pick a tenure that matches your financial goals and liquidity needs.
3. Check the Bank’s Credibility
Never compromise on safety. When investing in a fixed deposit scheme:
- Opt for well-established banks or financial institutions with high ratings from agencies such as CRISIL or ICRA.
- Read customer reviews to determine their satisfaction levels and how trustworthy banks are.
A fixed deposit scheme from a high-rated financial institution ensures your money stays secure.
4. Evaluate Cumulative vs. Non-Cumulative Fixed Deposits
- In cumulative fixed deposits, the interest is reinvested with the principal amount, giving you higher returns over time.
- In non-cumulative fixed deposits, the interest is paid out on a regular basis (monthly, quarterly, half-yearly, or annually).
Opt for cumulative fixed deposits if you do not need regular payouts and want to maximise returns. Go for non-cumulative fixed deposits if you are looking for a regular source of income.
5. Use Fixed Deposit Laddering for Better Returns
Fixed deposit laddering is a smart strategy to maximise your returns while preserving liquidity.
In fixed deposit laddering, you split your investment into multiple fixed deposits with different tenures, for example, 1 year, 2 years, 3 years, and so on. As each one matures, you can reinvest the money into a new fixed deposit with a longer tenure.
Benefits of fixed deposit laddering include:
- Higher interest rates from long-term fixed deposits.
- Regular liquidity (as one fixed deposit matures each year).
6. Understand Tax Implications
According to income tax regulations, the interest earned on fixed deposits is taxable. As per the union budget 2025-26, banks deduct 10% TDS if the interest exceeds INR 50,000 for regular citizens and INR 1 lakh for senior citizens.
Invest in tax-saving fixed deposits with a 5-year lock-in period to claim a deduction of up to INR 1.5 lakhs every fiscal year.
7. Consider Premature Withdrawal Rules and Penalties
In emergencies, you may need to break your fixed deposits. Therefore, it is essential to understand premature withdrawal terms and penalties related to the fixed deposit scheme you select.
Different banks charge varying premature withdrawal penalties, typically ranging from 0.5% to 1% less than the agreed-upon fixed deposit interest rate. For example, if your fixed deposit earns 6.5%, early withdrawal may reduce the interest rate to 5.5 or 6%.
The Bottom Line
A well-chosen fixed deposit can be a powerful tool to grow your savings.
If you’re seeking competitive fixed deposit rates and a hassle-free investment experience, IndusInd Bank is a good choice. Their fixed deposits offer a simple and secure way to build your wealth with features tailored for your convenience:
- Instant online booking in just three easy steps
- Best in class interest rates
- Flexible tenures
- Multiple interest payment options – monthly, quarterly, or at maturity