4 alternatives to savings account for higher returns

Is keeping your hard-earned money in a savings account worth your wait? The interest rates offered by the savings account are relatively lower as compared to other alternatives available in the market. The interest is calculated on a daily basis and is credited at the end of every quarter. This might be an apt investment option for a risk-averse investor. 

Also Read: How to save tax on up to Rs 17,000 on savings account interest

Let’s discuss the alternative investment options that can offer higher returns than a savings account: 

1. Liquid funds: Liquid funds are the open-ended schemes with a shorter lock-in period and bears low-risk as compared to other investment avenues. It offers protection to the capital while maintaining your liquidity position. It offers returns of 7-8% per annum and one can redeem the investment within a day’s time. You can park your excess money for a few days in a liquid fund and enjoy potential returns.
2. Ultra short-term funds: These funds have a shorter maturity period of 2-3 months and carry extremely low risk. As compared to savings accounts, these funds generate higher returns of up to 7-9% per annum. If one does not require emergency funds, they can invest in these funds for a couple of weeks or months. They can also maintain liquidity of their money as the withdrawal amount is credited to the bank accounts within one business day.
3. Government bonds:  These bonds are the safest option for investors. Government bonds are issued by the RBI through a non-competitive bidding facility and is auctioned to the public. These bonds are traded at high face value and the investment can be made through the mutual fund route or direct investment route. Risk-averse investors can invest in these government-backed bonds and enjoy the returns through the maturity amount.
4. Certificate of Deposits (CDs): Investing money in CDs will provide flexibility in terms of utilisation of short-term funds available with the investor. A CD works in a similar way as bank fixed deposits, but in comparison, CDs offer higher interest rates. CDs are held by an investor for a specific period and investment has to be done in a higher denomination only. If you have a surplus cash-in-hand and you can spare it for a while, you may consider investing in a Certificate of Deposit. If you are choosing a CD to park your funds, you should know that your money will be inaccessible until the maturity period. You can opt to invest in CDs with different maturity dates so that you will have access to your money at different points of time.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in