**High volatility in the stock market coupled with falling inflation has brought back fixed deposits as an attractive investment avenue for the investors who are looking for fixed returns.**

Bank FD schemes offer guaranteed returns to the investors at the time of the maturity.

A bank FD scheme is considered one of the safest investment avenues compared to other avenues of investments.

You can avail loans of up to 75-90 per cent of the FD amount.

Here are three ways in which you can get the most out of you fixed deposit plans...

**1. Do enough research**

Before deciding on a particular FD scheme, you should look at the interest rate it is offering. You should also decide on the tenure of the scheme. FD interest rates may vary across different banks and different tenures.

Interest amount on FDs are calculated quarterly, half-yearly, yearly or at the maturity. Therefore you should calculate and compare to discover which bank is paying you the highest interest rate.

Consider two banks X and Y. Bank X offers 10 per cent per year on a five-year FD and computes the interest on a quarterly basis.

On the other hand, Bank Y offers the same interest rate for the same tenure but calculates the interest on a yearly basis.

Here Bank X is fetching you more interest than Bank Y because it is calculating interest more frequently.

Thus the interest that you will get at maturity depends on how frequently the interest is calculated.

**2. Split your FD**

TDS (tax deductible as source) at 10 per cent is charged on fixed deposits if the interest income exceeds Rs 10,000 in a financial year. The tax liability of TDS is determined at the branch level.

If you want to avoid TDS, you can split your fixed deposits, that is, instead of opening one FD account you can open FD accounts in different branches of the bank and divide the amount among these.

TDS can also be avoided by opening fixed deposits in different banks.

Splitting your fixed deposit has another advantage.

In case you need money urgently, you do not have to break all your FDs.

You can withdraw the amount by breaking only one or two of them and rest of the accounts still earn you the predetermined interest.

**3. Reinvest interest income**

In an FD you are given two options: either withdraw the interest income or reinvest it. If you opt for the withdrawal option your saving account will be credited by your interest income.

The interest will be higher than the previous year if you go for the reinvestment option. Instead, if you withdraw the interest you will get the same amount of interest every year till the maturity.

Let us understand this with the help of an example:

Suppose you are considering investing Rs 50,000 in an FD scheme for five years at the rate of 9.5 per cent per year and the interest is calculated on a quarterly basis.

If you choose the reinvestment option, your total interest earned at the end of five years would be Rs 29,955.49.

If you withdraw interest every year, the interest income will sum up to Rs 24,609.55. That is a difference of Rs 5,345.94.

This difference depends upon the amount of FD; the greater the amount, the greater is this difference.

**Illustration: Uttam Ghosh/Rediff.com**

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