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What is a Fixed Deposit?
Fixed Deposit (or FD) is a low-risk financial instrument that is offered by banks, post offices or Non-Banking Financial Companies (NBFCs). You can easily invest in a Fixed Deposit and grow your savings at a fixed rate of interest, which is higher than interest rates offered by savings accounts. The convenience of investing along with the safety of your deposit can help you plan your short-term and long-term goals easily.
ABOUT FIXED DEPOSITS
In today’s times of increasing market volatilities, investing in a Fixed Deposit can help you get assured returns and steady growth of capital so you can build your savings with no effect of market fluctuations.
Features of Fixed Deposit
- The returns on your deposit are assured and remain unaffected by market fluctuations
- FD interest rates offered by NBFCs are higher than FD rates offered by banks
- Fixed Deposit can be easily renewed, and you can also reap additional rate benefits on renewing your deposits
- Tax is deducted at source, from interest on Fixed Deposit as applicable, as per the Income Tax Act, 1961.
Benefits of Fixed Deposit
- Fixed Deposit is one of the safest investment instruments, which offers highest stability
- Returns on Fixed Deposit are assured, and there is no risk of loss of principal
- You can opt for periodic interest payouts, to help you manage your monthly expenses
- There is no effect of market fluctuations on your Fixed Deposit, which ensures greater safety of your investment capital
- Some financiers also offer higher FD interest rates for senior citizens
Taxability on Fixed Deposit
The interest earned from Fixed Deposit is taxable. The tax deducted at source on FD can range from 0% to 30%, depending on income tax bracket of the investor. Financiers deduct 7.5% TDS if interest earned is more than Rs. 10,000 in a year, only if your PAN details are available with them. However, in case your PAN details are not provided to your financial institution, 20% TDS will be deducted.
If your total income is below the minimum tax slab of 10%, you can claim a refund of the deducted TDS. You can also avoid the deduction by submitting Form 15G to your financial institution, and submitting Form 15H if you’re a senior citizen. If you fall in the higher tax bracket (20% or 30%), you would have to pay extra tax over and above the TDS deducted by your NBFC or bank.
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Advantages of FD
There are several fixed deposit types that investors need to know about before investing. Without such knowledge, you may end up picking up plans not suitable to your investment objectives. Listed below are some of the common options open to prospective investors.
01
Assured returns
Unlike most other investment schemes, FDs offer guaranteed returns on the deposited sum.
02
Offers great flexibility
The best FD plans offer flexibility when it comes to the tenure of the plan. Depending on investor goals, they can either open short-term FD accounts or long-term FD accounts. For reference, most financial institutions offer maturity tenures ranging from 7 days to 10 years.
03
High capital appreciation
Cumulative fixed deposit plans compound interest monthly or quarterly or half-yearly. Hence, the deposit amount is substantially appreciated by the end of tenure.
04
An additional source of income
The investor can select the frequency of interest payout for non-cumulative fixed deposit plans. Therefore, they can act as an added source of income.
Fixed Deposits
There are several fixed deposit types that investors need to know about before investing. Without such knowledge, you may end up picking up plans not suitable to your investment objectives. Listed below are some of the common options open to prospective investors.
Corporate fixed deposits
These are fixed deposit schemes that are held by companies, other than banks. Also known as company FDs, investing in such instruments, may, in some cases, lead to higher returns.
Standard fixed deposits
Standard plans are basic investment schemes where you invest a fixed amount with a financial institution. After the fixed maturity period expires, you are eligible to receive the principal amount, along with the interest earnings from the scheme.
Senior citizen fixed deposit
Individuals aged over 60 years are also eligible to invest in fixed deposit instruments. However, most plans geared to this age group offer flexible tenure options. Additionally, senior citizen investors are eligible for higher interest rates on their investments compared to the standard schemes.
Tax-saving fixed deposit
If the primary goal of an investment is to save taxes, investors can take advantage of tax-saving FDs. However, the maximum deposit for such plans is limited to Rs. 1.5 Lakh per year. The lock-in period for this type of FD is 5 years.
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