Having multiple bank Fixed Deposits has its advantages. But won’t it be tough to handle them? We’ll tell you how to manage your multiple bank Fixed Deposit accounts profitably!
Having multiple Fixed Deposits can help you earn good returns in the short as well as long run. Don’t know why? Here are the advantages of having several Fixed Deposits.
- TDS (Tax Deducted at Source) is charged at 10% on FDs if the interest income exceeds Rs. 10,000 in a financial year. However, the bank determines the tax liability at the branch level. You can avoid TDS if you split your FDs i.e. open several FD accounts in different branches of the same bank. Alternatively, you can open accounts in the names of your family members. You could also avoid TDS by opening FDs in different banks. This way you can pay your tax when it is due and not before.
BB Tip: If you fall in a lower tax bracket, you can submit Form 15G/H and avoid TDS.
- Having several accounts helps in case of emergencies or cash crunches. If you have several accounts, you can withdraw required funds from one or two accounts so that the other accounts remain undisturbed and continue earning interest.
Additional Reading: Everything You Need To Know About Fixed Deposits
Having opened several accounts, read on to find out how to manage them profitably.
Managing interest income
Always opt for reinvestment of interest for the FDs paying the highest interest rates. This will help you earn greater interest year-on-year. You can opt for an interest payout for other FDs and use the interest either for your expenses or to invest in other avenues. The reinvestment option is best for longer tenure deposits. Also, go for deposits with shorter compounding periods.
Additional Reading: Astonishingly Simple Ways To Get Interest On Interest
You can use a sweep-in account where the predetermined amount that can be withdrawn from your FD is low, minimising the interest lost. Generally, for a sweep-in account, withdrawals can be made only in multiples of Rs. 1,000 or Rs. 5,000. Choose a bank where the multiples are lower.
The best option would be withdrawing in multiples of Re. 1. Opt to link several deposit accounts to your Savings Account. There are banks that offer to break the FD with the lowest interest, for a reverse sweep into your Savings Account. Make a note of the same.
Additional Reading: Have You Tried Fixed Deposit Sweep-In Yet?
Laddering your deposits
In a falling interest rate scenario, having several FDs with varying tenures can help you earn greater returns. You can break the FD earning the lowest interest rate to invest in one that is offering a higher rate. Determine the tenures based on your fund requirements. You can also avoid premature withdrawals to a certain extent.
Technology gives a hand
If you hold deposits in a single bank, you can use the net banking service of the bank to book, view and redeem FDs online. If you hold deposits in different banks, there are several apps such as ‘Oneview’ with which you can view and manage multiple accounts including your FDs. Using this tool, you can get a summary of the FDs in your name as well as in the names of your family members. The service is free for most bank customers and the data is real time. Since it’s a view only tool, there are no security issues.
Use your OD
In case you need funds urgently, you can consider using an overdraft (OD) facility. Several FDs help in a case like this. With an overdraft facility, you can borrow funds at 1% to 2% above the interest rate on your FD. Currently, the deposit rates of most banks range from 6% to 7% for tenures greater than one year. You can take an OD against the FD offering the least interest, which means you get money at an interest of 8%-10% whereas loans are charged at about 12%.
Additional Reading: How To Use A Fixed Deposit Calculator
Despite the advantages, remember that too many FD accounts can be a hindrance. It is best not to have more than seven to eight accounts. Also, it is prudent not to split FDs such that deposit amounts become very small especially if your FDs are tenured for more than a year. This might lower the potential interest you could earn. Optimisation is the operative word for managing FDs profitably.
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