Get the most out of your fixed deposit investments

One of the main questions for investors in fixed-income instruments is the manner in which they should tackle the present situation on the interest rate front. The Reserve Bank of India (RBI) has recently increased interest rates and this will impact all individuals who are investing in fixed deposits. There is, however, some work that needs to be done before this entire process is completed and, hence, here are some of the steps that they need to take on this front.

Do not rush: One of the first things that the individual has to do is to ensure that they act only after they have all the necessary information with them. The tendency for people is to rush to complete an investment whenever they hear about a specific point and that is something that the investor must avoid at this stage. One of the reasons for this is that while, the RBI has indicated higher rates in the economy, the banks have not yet acted on this in all cases. This could mean a situation whereby the action on the interest rate front could actually be visible after a period of time. This would result in a situation where the rate could change after some time and, hence, if there is a rush to get into the deposit at this stage without checking the bank’s action, then there could be a potential loss of opportunity in the times ahead.

Check bank details: The other thing that the investor must do is to check the position with the specific bank where they are planning to invest the fixed deposit. The details that they need to check is the times when the bank has raised rates and what the present rate for different maturities are and how these actually stand up with respect to the other banks around them. This is important, because, unless, this kind of information is known, there could be a decision made on incomplete information that might not be the best one. This can also give an indication as to when the rate rise can be expected if any and how this will impact them as to when the deposit is to be made.

Think about maturity: The investor also needs to think about the time maturity of the fixed deposit that they will invest in. This is important because they need to make the most out of the situation of high interest rates. The idea for the investor is to ensure that they are locked into the deposit with a longer-term maturity so that they will be able to earn a higher rate of interest continuously for a longer time period. If they choose a deposit with a short maturity, then they could find that they have ended the investment after a short period of time and then, they have a lower interest rate that they will earn from then on.

Existing investments: There are also the existing investments that need to be taken into consideration. If there are existing deposits that are already earning a high rate of interest, then it does not make much sense to do anything with them. However, if there are some that are coming to an end, or, that there is a very low rate of interest on a few of them, then there has to be action on this front. This will ensure that the entire fixed deposit portfolio is in tune with what is required and it is earning a high rate of interest. This kind of alignment will be better for the investor and will help them in their overall efforts.

For More infornmation visit - http://fixeddepositindia.blogspot.com/

[Source- mydigitalfc]

You can now use your fixed deposit to get a loan

With lending rates rising steadily, you would think twice before taking any kind of loan. In fact, in case you really need the money, you would think of liquidating your assets first instead of paying high rates on a personal loan. But there is one asset that you wouldn't want to liquidate - fixed deposits (FDs).

You can now find a solution within the product without liquidating it. FDs give you the option of taking a loan against the secured amount and provide the overdraft facility, wherein you can withdraw more than your deposit. "Instead of breaking a high-interest FD, it's better to take a loan against FD," said Suresh Sadagopan, a Mumbai-based financial planner.

Why does it work for you?
Advantage over personal loan: While a personal loan can cost you around 20% per annum, loans against FD charge an interest rate that is a little higher than the rate you are earning on your deposit.

Advantage over liquidating FD: Even at the cost of 1-2%, it makes more sense than liquidating the asset. To liquidate an FD, most lenders will charge you a premature withdrawal penalty. Usually, the penalty for breaking an FD is 0.5-1% and it is applicable for the period the deposit has remained with the bank.

Suppose you have an FD of Rs 1 lakh for two years that earns 9.3% per annum and decide to break it after six months. If the 180-day FD has an interest rate of 7.0% and the premature withdrawal penalty 0.5%, you will get an interest rate of 7.0% minus 0.5%, or 6.5%, on your deposit. So at the end of six months, your interest would come to Rs 3,229 at 6.5%.

If you had remained invested for two years, your Rs 1 lakh would have grown to R1.2 lakh at the end of the tenor. But if you had taken a loan of Rs 90,000 at the end of six months at 10.5% and repaid the principal at the end of 1.5 years, you would have paid around Rs 15,280 as loan interest and the net interest income (total interest income minus cost of loan) at the end of two years would be Rs 5,555. So there is a profit, while the principal remains intact.

Watch out for
Right to lien: Most banks will not let you close the deposit when you are availing the loan. Moreover, some banks specify that they can use any other deposit that you may have in the bank to settle loan dues in case of a default.

For More information visit - http://www.fixeddepositindia.blogspot.com

[Source -Hindustan]