Abstract An exciting prospect in the field of magnetic fluid hyperthermia (MFH) has been the integration of noble rare earth elements with biopolymers (chitosan/dextran) that have optimum structures to tune specific effects on magnetic nanoparticles (MNPs). Remarkably, it has been demonstrated that dipole–dipole interactions have a significant influence on nanoparticle dynamics. In this article, we present an exhaustive scrutiny of dipolar interactions and how this affects the efficiency of MFH applications. In particular, we prepare chitosan and dextran-coated Tb-doped MNPs and study whether it is possible to increase the heat released by controlling the dipole–dipole interactions. It has been indicated that even moderate control of agglomeration may substantially impact the structure and magnetization dynamics of the system. Besides estimating the specific loss power value, our findings provide a deep insight into the relaxation mechanisms and bring to light how to tune the self-heating efficacy towards magnetic hyperthermia.