If you are looking for a safe and reliable scheme to preserve a part of your savings, then look no further than the option of a Fixed Deposit (FD) scheme. Being a conventional deposit scheme, fixed deposits are more trustworthy vis-à-vis equity investments or mutual funds. By offering a uniform interest flow, it can provide you with good returns on your savings. Financial organisations, including banks and companies offer fixed deposit policies. You must study the details of the policy along with the fine print to gauge the returns. While some organisations provide good interest rates in the short-term, others might offer better interest rates in the long-term. While selecting a company for a fixed deposit scheme, you must check the credit rating to ensure that your investment is safe. Companies with credit ratings of AA or AAA indicate that they have the requisite strength. Any citizen of India, of any age, or a Hindu United Family (HUF), or a public limited company, or a partnership firm is eligible to invest in a fixed deposit scheme.
To put it simply, fixed deposits are investment schemes where your money is locked into a tenure ranging from one year to 10 years with annual interest rates between 5% to more than 9%. For example, Fixed Deposit on Finserv MARKETS offers an interest rate of 7.35%, which can go up to 8.95% for tenors ranging from 12 to 60 months .Many financial organisations provide higher rates of interest for senior citizens, depending upon the terms of the policy. In a nutshell, fixed deposits are the schemes with dual benefits of being safe modes of investment, besides providing additional income to people, especially senior citizens, through high fixed deposit interest rates. You must note that fixed deposit rates in India vary from time to time.
Fixed deposit account holders can claim a tax deduction for investment up to Rs 1.5 lakh in a tax-saving fixed deposit account under Section 80 C of the Income Tax Act.
Income earned as interest on fixed deposit is taxable according to the relevant tax slab. Usually, banks deduct TDS at the rate of 10% if the annual income from a scheme is more than Rs 10,000. To prevent TDS, an FD policyholder can submit either Form 15H or 15G—both self-declaration forms, stating that the policyholder’s income is not within the taxable income bracket—to the bank. A policyholder can also claim tax refund while filing annual returns for income tax.
One of the key features of any fixed deposit plan is the option of re-investment. It is simply a term deposit, meaning that rather than claiming the interest at regular intervals, the policyholder can claim the interest along with the principal amount at the time of maturity. A re-investment plan has the benefit of being compoundable or providing compound interest at the time of maturity.
A fixed deposit calculator is a convenient online tool that helps you calculate the interest amount on the deposit. You have to provide three components, the amount to be deposited, the deposit term and the interest rate being offered to compute the interest earned. These online calculators can provide you with the interest to be earned in a specific policy in a matter of seconds. You can also calculate the interest amount along with maturity amount with a compounding rate of interest using a separate calculator, known as fixed deposit compound interest calculator. For example, you can easily evaluate your returns in advance through Bajaj Finance FD Calculator.
You have to provide some of the documents pertaining to proof of identity and address to open a fixed deposit. The proof of identity documents include Aadhar card, PAN card, driving license, voter ID card or any government issued ID card. As proof of address, you can submit a passport, electricity bill or fixed line telephone bill. You also have to submit a bank statement along with a cancelled cheque.
There are certain factors that affect the rate of interest on a fixed deposit. Interest rates usually increase if India’s GDP is on the rise. The converse also applies. Additionally, the Reserve Bank of India (RBI) changes its monetary policy according to existing market variables like inflation or recession. If there are inflationary conditions, then RBI hikes repo rates, allowing banks to provide increased interest rates to depositors. This helps to stave- off rising costs, as a higher interest rate prompts more savings. Conversely, if there are recessionary conditions, RBI decreases the repo rates, with a corresponding decrease in the interest rates being provided by banks. When the rate of interest is lowered, it prompts any individual to borrow and spend more. Other factors that impact the rate of interests are the existing liquidity scenario along with the demand and supply situation.
A fixed deposit can be closed before maturity. This is known as premature withdrawal. In such cases, interest will be calculated as per the duration of the deposit amount. You must, however, remember that certain financial institutions can levy a penalty on premature withdrawal.
You can choose to open your fixed deposit jointly with someone like your parents, siblings, or spouse. In a joint fixed deposit, the first account holder has to pay the TDS. Similarly, the interest is also paid to the primary holder’s account.
In the case of a financial emergency, you can easily take a loan against your fixed deposit. As your FD amount acts as the collateral, these loans are easy and hassle-free to avail.
There is no mandated amount for minimum investment. Rather, the minimum amount varies from one financial institution to another. For example, in the case of Fixed Deposit on Finserv MARKETS, you can invest with a minimum amount of Rs 25,000 without waiting for a larger corpus.