Fixed deposits (FD) are one of the most popular savings instruments in India that let you deposit money into a bank or NBFC for a specified period of time which grows at a fixed rate of return. FDs are a great way to save money for both long and short-term financial needs. FDs are an especially great way to save, as they bear little to no risk as returns are predetermined and not affected by market fluctuations.

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The figures indicated above are accurate as of 06/10/2022.

Features of a Fixed Deposit 

Fixed deposits are one of the best savings options available in the market, let’s look at some features of an FD to help you get a better understanding of what makes FDs such an attractive savings option.

• Assured Returns: Since the rate of return of a fixed deposit is determined at the time of investment,  your return on investment is guaranteed. Additionally, this predetermined rate of return is not subject to market fluctuations, making your investment free from any major risks. 

• Flexible Tenors: FDs are generally offered for time horizons ranging from 7 days to 10 years, making them ideal for both short-term and long-term saving goals. You can choose your fixed deposit time period based on your financial goals. 

• Attractive Interest Rates: Banks and NBFCs offer competitive rates for fixed deposits. Additionally, senior citizens can get up to 0.50% higher rates of return. 

• Minimal Deposit Amount: You can begin saving with FDs with a deposit amount as low as ₹1000, making it one of the most accessible savings options. 

• Regular Payouts: Depending on your financial needs, you may also choose to save with a non-cumulative fixed deposit which would give you regular interest payouts. 

• Auto-Renewal: Many banks and NBFCs offer auto-renewal options for fixed deposits which makes it extremely convenient for you to begin with, as well as continue saving. 

• Tax Benefits: If your interest income from all fixed deposits with a bank is less than ₹ 40,000 (₹50,000 for senior citizens) in a year, you don’t have to pay any TDS. 

Why Should You Invest in a Fixed Deposit 

Any kind of saving decision should be well-thought out and should take into consideration your financial goals and circumstances. Here are some reasons to save in an FD:

• Low-risk Avenue

A fixed deposit scheme is one of the safest investment options available in the market as it’s not subject to market fluctuations. Investing in an FD will ensure that your risk is diversified, helping you create a more well-rounded portfolio. 

• Guaranteed Returns 

Being a safe investment option, fixed deposits ensure both safety of capital as well as returns. The interest rate on your FD is predetermined when you book an FD, this means that you will receive said interest rate on your investment irrespective of any change in interest rates over your investment period. 

• Reliable Investment Option

A fixed deposit is one of the most reliable investment options available in the market as you are well aware of the rate of return and investment time horizon at the time of investment itself. If you have a requirement for the saved amount within a given period of time, FDs are a great savings option as your FD tenor can be chosen depending on your requirements. 

• Competitive Interest Rates 

If you’re looking to make an investment in fixed deposit, you can choose from a wide range of banks and NBFCs that offer extremely competitive rates of interest, which will help you maximise your returns. If you’re a senior citizen, your returns can be even higher as most banks and NBFCs offer up to 0.50% higher rate of return for anyone over the age of 60. 

• Convenient Savings Option

With the rise in online FD bookings, fixed deposits have become one of the most convenient investment options available in the market today. With most banks and NBFCs, you can book an FD online, within a matter of minutes. Additionally, many banks and NBFCs give you the option to auto-renew your FD which makes saving seamless.

Key Things to Consider When Choosing a Fixed Deposit

It's imperative that you factor in your financial circumstances, goals and other factors while making any savings decisions. Here are some important factors to consider before booking a fixed deposit:

Risk Appetite

Before making an investment, you should always take into consideration your risk tolerance levels. Your risk appetite is unique to you and your financial goals. Fixed deposits are a great financial instrument as it holds negligible risk and offers guaranteed returns, making it ideal for all kinds of investors. 

Time Horizon

An FD account is great for both long-term and short-term investors as FD tenors can range anywhere from 7 days to 10 years. So, whether you’re looking to grow your money in a stable and steady manner for a long time or just looking to park your excess funds on a short-term basis in a risk-free savings option that guarantees returns, FDs are a great choice for you. 

Assured Returns

If you’re someone that’s looking for guaranteed returns on your investment, a fixed deposit might be an ideal choice for you as interest rates on your fixed deposits are predetermined and paid out as specified by you. If you’re worried about certain inevitable economic downturns eating away at your hard earned money, FDs are a great savings option for you. This is because unlike most other savings and investment instruments, an FD is not affected by market fluctuations, meaning you get the rate of return that you were assured at the time of savings regardless of market conditions.  

Financial Goals

Another important factor to consider when making an FD investment is your financial goals. If you require the invested capital in the immediate future, consider short-term FDs as a way to park your funds safely while also generating assured returns. However, if you don’t have immediate need for the invested amount, consider a long-term FD that will generate higher rates of return while keeping your investment safe. Additionally, if you require a regular source of income, consider investing in a non-cumulative fixed deposit that will give you interest payouts as specified by you. Otherwise, consider a cumulative fixed deposit that will help you maximise your fixed deposit investments. 

Safety of Capital

If your primary goal with your savings is to preserve it and ensure that it’s not eaten away due to market fluctuations, then a fixed deposit might be the ideal savings option for you. This is because when you save with an FD, your money grows at predetermined rates of return, which ensures that both your capital and returns are safe. Additionally, FDs are not subject to market fluctuations which means your savings are safe regardless of market conditions. 

How to Invest in a Fixed Deposit

Saving in a fixed deposit is a financial decision that requires a lot of forethought and analysis. Here’s how you can begin saving in an FD: 

• Compare Prevailing FD Rates

Before making any saving decision, compare and contrast prevailing interest rates in major banks and NBFCs. This is an important exercise while making any investment decision as comparing and contrasting ensures that you’re well-informed about existing rates of interest for FDs. This will ensure that you are able to choose an FD option that maximises your returns. 

• Choose Preferred Tenor 

Another important step when making any savings decision is to determine your preferred tenor. This would depend on your financial priorities. Broadly speaking, if you’re someone that has short-term saving goals, you should choose a short-term fixed deposit. However, if you’re in it for the long haul, you should consider choosing long-term FDs. They are a great option for both long-term and short-term savers as the tenor for FD ranges from 7 days to 10 years. 

• Choose Preferred Payout Frequency

Depending on your financial needs and goals, you can choose between a cumulative and non-cumulative fixed deposit option. When you save with a cumulative FD, your interest is accrued and both the interest and the capital amount are paid out at maturity. However, with non-cumulative FDs, interest earned on your deposit is paid out at regular intervals (monthly, quarterly or yearly) as specified by you. 

• Choose Mode of Deposit

With the rise in online FDs, booking an FD has never been easier. You can choose to book an FD through an FD provider’s app or website. Alternatively, you can also choose to visit the nearest branch of an FD provider and book an FD in person. 

Types of Fixed Deposits

There are a number of fixed deposit schemes available in the Indian market. Let’s look at the key features of some common fixed deposit schemes to help you decide which one(s) you should choose: 

Bank FDs 

A bank FD is a type of fixed deposit wherein you deposit a lump sum amount into a bank for a specified period of time at a fixed interest rate. Since banks are typically accredited financial institutions that are closely monitored by the RBI, you can rest assured that your savings are safe and sound. 

Company FDs 

Company FDs, also known as corporate FDs are another popular FD option available in the market. A company FD is any fixed deposit that’s offered by financial corporations and NBFCs. While saving with company FDs, it’s crucial that you take into consideration CRISIL, ICRA and other credit ratings as they are an important indicator of the NBFC’s creditworthiness. Company FDs often offer competitive rates of return and flexible tenors. 

Post Office FD

Post Office fixed deposit, also known as post office term deposit is one of the safest savings choices available in the Indian market as it’s issued by Indian Postal Services. Additionally, it is also backed by the sovereign guarantee of the government of India.

Who Should Invest in a Fixed Deposit?

FDs are one of the most versatile savings options available to Indian investors. Here’s a comprehensive list of who should invest in an FD and why: 

Stage 1 (18 to 31 years)

This is a diverse age group that has varied financial goals and aspirations. If you are a part of this age group, it’s likely that you have higher amounts of disposable income as your financial responsibilities are at its lowest during this period. When you’re around the ages of 18 and 31, you can use an FD to:

•  build cash reserves and liquid emergency funds

• fund short-term saving goals such as vacation plans, plans to buy gadgets, wedding plans, education plans, etc. 

• diversify your portfolio as they offer a great hedge against market volatility

An FD might be the best saving choice for these needs as it bears lower risk, offers assured returns and cultivates a saving habit. Additionally, many banks and NBFCs also offer auto-renewal facilities for your FD which makes saving simple and effortless. 

Stage 2 (31 to 45 years)

During the ages of 31 to 45, it’s highly likely that you have a family and higher levels of financial responsibilities. Hence, it becomes imperative that you begin saving diligently both for your dependents as well as for your retirement. During this period, it’s not advisable to take many risks with your hard earned savings and it might be wise to start saving into an FD that comes with lower levels of risk, guaranteed returns and incredible tax benefits. When you’re around the ages of 31 and 45, you can use an FD to: 

• build both specific and generic emergency funds 

• begin saving for retirement

• start saving for your dependents’ future

Saving with an FD is a wise decision for people between the ages of 31 and 45 as it assures both safety of the capital and returns. Additionally, by saving with an FD, you can enjoy tax benefits under Section 80C. 

Stage 3 (45 to 60 years)

During the ages of 45 to 60, it’s likely that you have extensive financial needs and responsibilities. This is also the time when you should be saving aggressively for retirement and building a corpus that will sustain you during retirement period. It is also crucial that you factor in medical and other kinds of emergencies into your saving goals and decisions. When you’re around the ages of 45 to 60, you can use an FD to:

• build a corpus for retirement 

• create extensive emergency funds 

• create a regular source of income to help you achieve financial independence

• lower tax liabilities

An FD is a great savings tool for people between the ages of 45 and 60 as they cannot afford to take unwarranted risks with their money. Additionally, FDs are extremely easy to book and renew, which makes savings simple and seamless. 

Stage 4 (60 years and above)

When you’re above the age of 60, it’s likely that a majority of your efforts are directed towards safeguarding your wealth. During this period, you might not want to take any risks with your money. FDs are a great savings option for this type of need as not only does it assure safety of capital, it also generates decent returns on your savings. When you’re 60 and older, you can use a fixed deposit to:

• generate regular income through interest payouts 

• build emergency funds

• save for your family 

A fixed deposit is a great way to save during your retirement period as it is a simple, low-risk and comfortable way to save. It also helps you generate a regular source of income through a non-cumulative FD.

Eligibility Criteria to Book a Fixed Deposit

Fixed Deposits are financial instruments that let you save up for your financial needs and accumulate capital to attain future goals without much hassle. Any individual/non-individual can book an FD due to its minimal requirements of age and deposit amount. In fact, even if you are a minor, and don’t meet the fixed deposit eligibility criteria, an adult can open an FD on behalf of you.

You are eligible to book an FD if you qualify under the following categories:

Individual

• An Indian Resident

• Individual of Indian Origin 

• Non-Resident Indian

Non-individual

• A Partnership Firm 

• A Hindu Undivided Family (HUF)

• A Sole Proprietorship 

• A Family Trust 

• An Association 

• A Club 

• A Society 

• A Company
  

Documents Required to Book a Fixed Deposit 

Opening an FD account includes the submission of certain documents of address and identity proof to ascertain your credibility which is part of the vital requirements for a fixed deposit account. Based on the aforementioned categories that you could identify yourself in, you can learn more about the documents required for fixed deposits.

Here are the documents required for opening a fixed deposit account if you are an individual : 

Identity Proof Documents

• Voter ID 

• PAN Card

• Driving Licence 

• Passport

• Aadhar Card 

• Ration Card 

• Latest passport size photograph 

• Senior Citizen ID Card

Address Proof Documents

• Electricity bill 

• Passport

• Telephone bill 

• Bank statement with a cheque 

• Post Office issued certificate or ID card

• Other utility bills 

Documents Required for a Public/Private Limited Company to Invest in an FD

If you are a Public/Private Limited Company, you will need to provide the following FD documents to invest in an FD: 

• Certificate of Registration 

• Resolution from the power of attorney and the Board of Directors 

• Certificate of Incorporation 

• Company Permanent Account Number

• Memorandum and Articles of Association

• Address and identity proof of the authorised signatories

• Specimen signatures of the authorised individuals

• Statement of bank account 

• Recent electricity/telephone bill
  

Documents Required for a Partnership Firm to Invest in an FD 

If you are a Partnership Firm, you will have to submit the FD documents mentioned below to invest in an FD:

• Deed of Partnership 

• PAN Card

• Certificate of Registration 

• Identity and address proof of the authorised signatories 

• List of the authorised signatories

Documents Required for a Hindu Undivided Family (HUF) to Book an FD 

If you are a Hindu Undivided Family (HUF), you will need to submit the documents for fixed deposit as mentioned below : 

• Deed and Declaration of the HUF

• Address and identity proof of the Karta of the HUF

• PAN Card

• Bank statement of the HUF

Documents Required for a Statutory Body/Local Authority to Invest in an FD

If you are a statutory body or a local authority, you can invest in an FD by submitting the following FD documents: 

• PAN Card 

• Latest electricity/telephone bill 

• Bank account statement 

• Certificate of Incorporation 

• KYC of the authorised signatories 

• Certificate of Registration

• Copy of the permission letter from the respective ministry or government authority 

Documents Required for Registered Societies to Book an FD

If you are a registered society, you can book an FD by submitting the FD documents mentioned below:

• PAN Card

• Recent telephone or electricity bill 

• Statement of bank account

• Memorandum and Articles of Association 

• Copy of the by-laws of the society 

• Copy of Resolution from the Board of Directors for the authorisation of the FD account

• Certificate of Incorporation/ Registration

• Address and Identity proof of the authorised signatories 

• Specimen signatures of the authorised individuals
  

Important Things to Note While Submitting Documents to Book an FD 

You need to be mindful about certain aspects when you submit your FD documents. Here’s what you need to keep in mind while submitting your FD documents: 

1. You must always submit original documents along with their photocopies for verification.

2. If you fill out the application form offline, make sure to always write in capital letters and use a black pen. 

3. Always remember to countersign if you overwrite.

4. Utilise the nomination facility provided. 

5. Provide your permanent address as well as your contact number.

Taxation on Fixed Deposit

When you invest in a fixed deposit, you can deduct up to ₹1.5 Lakh from your taxable income under Section 80C. However, it is important to note that the interest income earned on the fixed deposit is taxable as per your tax bracket.

If your interest income from all fixed deposits with a bank is less than ₹40,000 (₹50,000 for senior citizens) in a year, the bank cannot deduct any TDS. In case your interest income is beyond this threshold, your bank will deduct TDS at10% when your PAN is linked to your bank account and TDS at20% when your PAN is not linked to your bank account.