The best way to build on your wealth is by investing wisely, and Fixed deposits (FDs) are often the first harbour for those beginning their investment journey. While it’s important to have Fixed Deposits as instruments on your financial portfolio, it’s best to know how a Fixed Deposit works in order for you to yield maximum benefits from this risk-free form of investment.
A Fixed Deposit is a safe and secure investment vehicle that allows you to deposit a lump sum and turn it into assured returns over a specific period, depending on the investor’s choice. A Fixed Deposit guarantees the principal invested, along with interest income at the booked rate regardless of any changes during the tenor.
There are two types of Fixed Deposits – cumulative FDs and non-cumulative FDs. With a cumulative Fixed Deposit, the interest on your deposit is compounded each year until the date of maturity. This is usually considered a long-term investment and results in higher returns.
However, with a non-cumulative Fixed Deposit, the gains are paid out to you either monthly, quarterly, half-yearly, or annually.
Fixed Deposits are one of the most reliable options to park your hard-earned money and gain higher returns on a deposit. The principal rule around a Fixed Deposit is that the money invested should not be withdrawn before maturity. However, in case there is a need for premature withdrawal, you might have to pay a penalty.
If you were not aware of the penalty that needs to be paid on a premature FD withdrawal, here are a few more facts to help you understand FDs better.
Here’s a look at the five lesser known facts about FDs to help you maximise your returns:
NBFCs (Non-Banking Financial Companies) typically offer higher rates of interest on FDs in comparison to banks. This means that investing in FDs via NBFCs will allow you to earn better returns in the same span of time. For example, interest rates on a Bajaj FD range from 6.93% p.a. to 8.10% p.a. and are higher than the FD interest rates offered by banks.
Senior citizens are offered a higher rate of interest on FDs in comparison to others, allowing them the option to live a hassle-free, post-retirement life. Senior citizens can opt for a non-cumulative senior citizen FD to receive monthly, quarterly, or half-yearly interest payouts from their Fixed Deposit investment.
You can get an emergency loan against FDs, usually in the form of an overdraft facility, wherein a credit limit is sanctioned to the borrower with the FD as collateral. The borrower will continue to earn interest on the invested FD during the loan tenor. Here, borrowers can withdraw up to the sanctioned amount from their overdraft account and repay the loan based on their reimbursement capacity. The interest is levied only on the amount drawn till its repayment.
Interest earned on FDs up to ₹50,000 (only for senior citizens) during the course of a financial year is free from taxation. If a person falls below the income bracket of ₹2,50,000 per annum, including interest earned from FDs, they can submit Form 15G/15H and avoid paying any tax on that amount. Furthermore, with a tax-saving FD, investors can reap the benefits of tax deduction under section 80C of the Income Tax Act, 1961. Here, the lock-in period of the deposit is 5 years and investors can claim a deduction on the investment amount of up to ₹1.5 lakh.
If you choose to open an FD account at a bank or NBFC with your partner, sibling, child, or parent, it’s important to remember that the primary account holder needs to pay the TDS on the interest earned. For interest earned above ₹10,000 per year on a joint account, TDS will be deducted in the primary account holder’s name. Moreover, even the interest earned on the FD is paid/credited to the first holder’s account. You can learn more about TDS on FD Interest at Bajaj Markets.
Before creating a fixed deposit, it is vital to know about the interest you will receive on your investment. To evaluate the amount of your investment at a specific rate of interest, you can use the Bajaj Finance FD Calculator and compute the maturity value of your investment.
You can yield substantial returns by investing in a Bajaj Finance Fixed Deposit as they offer high FD interest rates. With a Bajaj Finance FD, investors can opt for a monthly, quarterly, half-yearly, or annual payout option, based on their preference. You can also invest in a Bajaj Finance FD online by logging into the Bajaj Markets website. Invest now!