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What You Need To Know About Fixed Deposits

by BankingTricks Desk
Published: Last Updated on
What You Need To Know About Fixed Deposits

What is Fixed Deposit?

Fixed deposit is a type of monetary instrument offered by banks which is referred as one of the safest investment alternatives available. Fixed Deposit provides a higher rate of interest than a regular savings account. Banks provide flexibility in selecting Fixed Deposit tenure which can fluctuate from 7 days to 10 years. FD interest rates depend upon different factors, for example, the tenure of the deposit, economic conditions, investment sum, age of the investor and bank’s policies.

Also, banks and money related establishments provide different features added to the typical fixed deposit like a sweep in deposit facility, tax saver FD, credit against fixed deposit and substantially more. In other words, fixed deposit provides exceptional yields on the investment, greater flexibility, high steadiness and safety of investor’s well deserved money.

Why Choose Fixed Deposit?

The fixed deposit provides different features and benefits, which makes it one of the most famous investment choices to the depositors. Below-mentioned are some of the reasons why one ought to choose a fixed deposit:

1. Guaranteed Returns on Investment

Fixed Deposit provides guaranteed returns on investments. The fixed deposit interest rates applicable (at the time of investment) are what the bank resolves to pay on their investments and are consistently hazard free.

2. Flexible Deposit Tenure Options

The Fixed deposit comes with flexible tenure choices which may from 7 days to 10 years. Fixed Deposit interest rates likewise shift with different tenure choices. However, account holders can invest in tax-saver fixed deposits just for a fixed period of 5 years and 10 years.

3. Investment Amount

The base and greatest fixed deposit investment sum can shift starting with one bank then onto the next. However, some banks provide least fixed deposit sum as low as Rs.100 with no most extreme deposit limit that can be invested in a fixed deposit. Tax saver FDs come with a greatest constraint of Rs.1.5 lakh per annum. However, fixed deposit rates offered on mass fixed deposits (Rs.2 Crore or more may differ).

4. Higher Returns

Fixed deposit interest rates are higher than the returns on the savings account. Fixed Deposit interest rates shift from 3.5% to 9.20% per annum as indicated by the bank, age of the investor and the tenure that one invests for.

5. Calculate FD Returns

Any investor can check and calculate the returns on the fixed deposits easily by utilizing fixed deposit adding machine. The fixed deposit adding machine helps to calculate the returns utilizing chief sum, FD interest rates and tenure.

6. Credit against Fixed Deposit

Banks and Financial Institutions provide the facility to every one of its depositors to benefit advance against fixed deposits. Interest rates on these credits are normally 1-2% higher than fixed deposit interest rates yet less than the greater part of the applicable interest rates on advances. People who are in need of a urgent inflow of money can profit advance against fixed deposit instead of pulling back their fixed deposit before development.

In the event that any individual decides on a premature fixed deposit withdrawal, they get fixed deposit interest rates lower than the card rate and equal to the rate of interest offered on the day the money is pulled back, which leads to lost returns. Instead of making FD withdrawals, people ought to settle on a credit against FD as it is offered at lower interest rates and are classified under secured advances where the fixed deposit goes about as collateral.

7. Credit Card against Fixed Deposit

Any individual holding a fixed deposit can benefit a credit card secured against it. As it is a secured credit card, it would, therefore, not necessarily require a decent credit history. These credit cards can likewise help in building credit history and improve credit score, provided the cardholder uses the card responsibly.

8. Premature or Partial Withdrawal

Fixed deposits with premature withdrawal facility permit the depositor to close the FD even before the development period. However, account holder will be required to pay premature penalty to the bank for pulling back the FD sum before deposit tenure. Some banks do offer premature withdrawal facility with zero penalty charges. Then again, with fixed deposits without premature withdrawal, the depositor can’t pull back the FD sum before the deposit tenure.

What is a Company Fixed Deposit?

Organization Fixed Deposit is a type of fixed deposit which is issued by companies for a fixed tenure with a specified rate of interest. Organization Fixed Deposits are generally provided by finance companies, lodging finance companies, and other Non-Banking Financial Companies. Agencies like ICRA, CARE, and CRISIL rate such deposits to provide safety.

Organization Fixed Deposits are unsecured and any individual just invests the money based on its stand and reputation in the market. In this way, it is imperative to consider these appraisals before investing in a corporate fixed deposit.

Benefits of Company Fixed Deposit

Organization Fixed Deposit provides some benefits which makes it a preferred investment alternative over other fixed deposits in India. Following are the benefits of investing in an organization fixed deposit:

  1. Generally, organization fixed deposit interest rates are higher than fixed deposits provided by banks
  2. The organization fixed deposits additionally comes with designation facility
  3. With this type of deposits, any depositor can get better fixed deposit rates for a short tenure with better liquidity

Top 5 Company Fixed Deposit Providers in India

  1. Mahindra Finance
  2. Shriram Transport Finance
  3. Bajaj Finserv
  4. Sundaram Finance Company
  5. Kerala Transport Development Finance Corporation Limited

Types of Fixed Deposit

  1. Cumulative Fixed Deposit
  2. Non-Cumulative Fixed Deposit
  3. Tax Saving Fixed Deposit
  • Cumulative Fixed Deposit

Under a cumulative fixed deposit, the investor does not get any FD interest over every quarter, half-year or year. The FD interest under a cumulative deposit scheme is compounded every quarter, half-year or every year and added back to the all out deposit sum and paid toward the end of the deposit tenure.

For instance, a customer invests in a cumulative fixed deposit with FD interest rate of 10%. In this way, he/she won’t get interest every month, quarter, half-yearly, and yearly. The accumulated interest will be payable toward the end of the deposit tenure with the development sum.

  • Non-Cumulative Fixed Deposit

Under a non-cumulative fixed deposit, a customer is paid interest at regular intervals i.e. month to month, quarterly, half-yearly or yearly as per the bank strategy. A non-cumulative fixed deposit is best suited for those who need to earn at regular intervals. For instance, senior citizens who have no source of income can settle on a non-cumulative fixed deposit that can help them with regular interest income.

  • Tax-Saving Fixed Deposit

Under section 80C of Income Tax Act, 1961 customers can decide on tax-sparing fixed deposit and can guarantee a deduction of a limit of Rs. 1.5 lakh by investing for a lock-in period of 5 years, which can’t be pulled back before the development date. However, the interest earned is taxable. Additionally, the depositor can nominate/authorize someone to pull back the accrued deposit sum before or post development in the event of the death of the depositor.

Things to think about Tax-Saving Fixed Deposit Account

Income Tax Fixed Deposit Interest

Interest earned on Fixed Deposit is added to the investor’s yearly income and is completely taxable under the income tax slab applicable. FD interest income is considered under ‘Income from Other Sources’ category in the Income Tax Return.

Under Union Budget 2019 announcement, the government raised the TDS (Tax Deducted at Source) threshold limit on interest earned on bank/post office deposits from Rs. 10,000 to Rs. 40,000. Along these lines, from April 2019, banks won’t deduct TDS if income earned by interest is up to Rs. 40,000. On FD interest income more than Rs. 40,000, banks will deduct 10% TDS.

Earlier, banks used to deduct TDS on interest income of more than Rs.10,000. Any person who is earning FD interest income up to Rs. 10,000 was not deducted any TDS. There used to be no TDS deduction on FD interest income up to Rs. 10,000, however the interest income was added to the yearly income.

However, on the off chance that an individual fall under 5% income tax slab, then the individual can file Income Tax Return and guarantee a refund. In the event that an individual isn’t liable to pay any income tax as per the Income Tax Slabs applicable, then the individual can submit Form 15G with the bank to maintain a strategic distance from TDS deduction. Senior citizens can submit Form 15H with their bank to maintain a strategic distance from TDS deduction.

However, on the off chance that any individual falls under any income tax slab which is more than 10%, then he/she is liable to pay more tax (above TDS).

Documents Required for Opening a Fixed Deposit Account

Following is the list of KYC documents which are required for opening a Fixed Deposit Account:

Verification of Identity

  1. Aadhaar Card
  2. Passport
  3. PAN Card
  4. Voter ID card
  5. Driving License

Address Proof

  1. Passport
  2. Telephone bill
  3. Electricity bill
  4. Bank Statement with Check
  5. Aadhaar card
  6. Certificate/ID card issued by Post office

How to Open a Fixed Deposit Online?

Any individual can compare and open a Fixed Deposit Account online at Paisabazaar.com by simply following two simple steps:

Step 1: In the initial step, fill a Fixed Deposit form with required personal information like city that an individual reside in, name of the investor, date of birth, email address and contact number. Once submitted, the Fixed Deposit instrument naturally will provide best bank FD alternatives to compare.

Step 2: In the second step, the candidate can compare FD rates and apply for the one offering higher fixed deposit interest rates. The investor will be either redirected to the selected bank’s website or provided with a reference number. On the off chance that the individual hoping to invest in a fixed deposit is provided with a reference number for the fixed deposit application, an account expert will get in contact for further process of the application.

Alternatively, interested investors can open a Fixed Deposit offline also by visiting the preferred bank’s branch nearby.

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