If i have a FD and opt for reinvestment option does it help in returns compared to making annual FD for the same?
Reinvesting gives you a simple way to make sure your investment accumulates the highest possible returns. A bank FD offering a rate of interest of 9% for a year with reinvestment option will offer returns slightly higher than 9% due to the power of compounding. You can request to opt for a reinvestment option at any time in your investment tenure and your FD will start reinvestment from the next quarter when the interest will get reinvested in your investment.
According to SBI, reinvestment Fixed Deposit is a variant of Term Deposits but instead of interest being paid out at a regular frequency during the period of deposit; here it is paid out only at the time of maturity. Regular interest is added to the principal and compound interest calculated and paid thereon. So, you are actually getting interest on interest. This is a good option if you want to maximise returns from your FD.
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