Financial well being is chiefly drafted by the amount of money you have at your disposal. Having said that, this doesn’t happen on its own and is certainly not automatic. You have to work for it and save money.
In the Indian context, there are certain instruments that you can look up to for saving money. Fixed Deposit or Term Deposit is one of them. You can make Fixed Deposit in a bank and can earn interest on the amount of money that you have deposited in your bank for a predetermined period. Fixed deposit can be done for a period ranging from one month to ten years. The interest varies anywhere from 6% to 9% on an annual basis.
In a sense, Fixed Deposit is an investment instrument with minimal riskinvestment instrument with minimal risk that you can use for saving and grow your money. The amount is invested with a bank that pays you fixed rate of return on a yearly basis.
Your money is locked in your bank with which you had done fixed deposit. However, the interest can be withdrawn either at the end of the term or on a regular basis that is monthly, quarterly, half yearly or yearly. The principle amount is returned to you once the term of the Fixed Deposit period is over. So, you can use the interest earned, and the principle is save with your bank.
Now the important question, how to get most out of your fixed deposit. The beauty of fixed Deposit is that the interest payment is guaranteed. That is you are sure that you would get the interest paid to you without any ifs and buts. And this fact, you can use to get the most out of your fixed deposit.
You have your short term goals as well as long term goals for which you are saving money. Let’s say you want to grow your money for your child’s higher education. This can be a long term goal. Then you want to pay your child’s school fees. This can be a short term goal. In both of these scenarios, Fixed Deposit can be a helping hand to you.
Having said that, you have to save money for having a fixed deposit in a bank. So start saving money as soon as possible. For this, you can open up a saving bank amount in the bank and make budgetary provisions in such a fashion that you end up saving a sizeable portion in your bank account. By having regular deposits in your bank account, you end up saving a good amount of money in a year or two.
Then once you have the money with you, you can move ahead and do fixed deposit with your bank. You can make a fixed deposit of say one lakh of Rupees. Your principle is safe in your bank, and you happen to earn interest on your principle amount which you can use for meeting your short, as well as long term goals.
Let me take some examples to show you that Fixed Deposit can be a great tool for meeting your short and long term goals. Let’s say you have done a fixed deposit of two lakh with a bank for a period of say ten years on which you are getting a rate of return of 8% annually. That comes to yearly interest amount of somewhere close to rupees sixteen thousand which is well over thousand rupees per month.
Now say you want to get most out of your fixed deposit. For this, you may take a regular, systematic investment plan in a mutual fund of Rs. 1000 per month. The amount you get in the form of monthly interest can be invested in a S.I.P. So you are earning on your fixed deposit, plus you are investing your earning in a Mutual Fund through S.I.P.
This way you are growing your money by investing the proceeds that you have earned by doing Fixed Deposit. So you do not have to make provisions for S.I.P. instead you simply have to invest your earnings from your fixed deposit. Thus, the interest earned of Rs. 16,000.00 by way of fixed deposit is being invested by way of S.I.P. in which you would be getting returns anywhere from 5% to 20% on a yearly basis. So your principle is safe, and you have invested the interest in a mutual fund through S.I.P. This is one of the examples showing you how you can make most out of your fixed deposit.
Let’s take another example showing you that the fixed deposit can help you to make most out of your investment. Suppose you have taken a fixed deposit of 1.5 lakh for a term of ten years. Now you also have a term insurance of say 50 lakh whose annual premium is Rs. 10,000. Now to get most out of your fixed deposit, you can pay the premium of your term insurance through the interest that you have earned with your fixed deposit. The annual interest you get out of your fixed deposit is Rs. 12000 which is enough to pay the annual premium of your term insurance of 50 lakh. This way you do not have to make provisions for your term insurance, and you go onto pay the premium simply using the proceeds of your fixed deposit that is the yearly interest.
Likewise, if you happen to have fixed the deposit in a bank, you can use the interest earned to meet your child’s school fees. This way you would not have to put extra money for your child’s school education.
Both these examples show you that you can certainly make most out of your fixed deposit. Simply make fixed deposit, set up your financial goal, and finance that financial goal through the interest that you earn with your fixed deposit. It is simple as that. Plus: your principle is always safe with the bank, and you have to make no extra savings to finance your short term or long term goal.