For many years, Fixed Deposits for Indians have been “ Budhape ka Sahara”. If you are looking for a secure and reliable way to increase their assets, have turned to fixed deposits (FDs) as a popular investment option. Let’s Dig into discussing everything from what FDs are to how they operate, as well as their advantages, hazards, taxation, and other important factors to keep in mind.
What are Fixed Deposits?
Fixed deposits, or FDs, are financial products provided by banks and financial institutions. They let individuals invest a lump sum amount for a certain period of time at a fixed interest rate. Because of their minimal risk and fixed returns, FDs are regarded as one of the most secure investment options.
Here's how do Fixed Deposits Function ?
Individuals can invest a specified amount, known as the primary, in an FD for a set period of time, which can range from a few months to several years.
Interest Rate
The interest rate on FDs is determined at the time of investment and remains in effect throughout the term.
Interest Payment
Interest can be paid out on a regular basis (monthly, quarterly, or bi-annual annually) or compounded and paid along with the principle when the FD matures.
Maturity
At the conclusion of the term, the investor receives the principal amount plus interest.
Benefits of Fixed Deposits?
Investment Safety
Deposit Insurance and Credit Guarantee Corporation (DICGC) insures FDs up to Rs. 5 lakh per depositor per bank, making them one of the safest investment options.
Market Stability
Due to fixed interest rates, FDs are excellent for risk-averse persons.
Simple to Understand
FDs are simple investments, they are accessible to a wide spectrum of investors.
Wide Tenure Range
Investors can select tenures based on their financial goals, whether short-term or long-term.
Loan against FD
When faced with a financial emergency, individuals might borrow against their FDs, which serve as collateral.
Senior Citizen Advantages
Banks frequently give greater interest rates on FD assets to senior individuals.
Taxation of Fixed Deposits
Interest earned on FDs is taxable as per the individual's income tax slab.
Interest Income
Most mutual funds offer daily liquidity, which means you can buy or sell shares on any business day. This provides investors with relatively quick and easy access to their invested capital compared to some other types of investments.
Tax Deducted at Source (TDS)
If the total interest earned in a financial year exceeds Rs. 40,000 (Rs. 50,000 for senior citizens), TDS is deducted by the bank.
Tax-Saving FDs
Certain FDs, with a lock-in period of 5 years, are eligible for tax deductions under Section 80C of the Income Tax Act
Considerations before Investing in Fixed Deposits
Interest Rate
To maximize returns, compare interest rates offered by different institutions.
Tenure
Select a tenure that corresponds to your financial objectives
Liquidity Requirements
Because FDs have a fixed term, evaluate your liquidity needs before investing.
Tax implication
Understand the tax consequences of FD returns based on your income tax bracket
Inflation
Consider inflation when calculating the future buying power of your FD returns
Frequently Asked Questions (FAQs)
How secure are fixed deposits?
What is the minimum and maximum fixed deposit tenure?
Can I withdraw money out of my Fixed Deposit before it matures?
When is the interest on Fixed Deposits paid?
Are there any tax benefits for investing in Fixed Deposits?
How is the interest earned on Fixed Deposits taxed?
Can I take a loan against my Fixed Deposit?
Is there any difference in interest rates for senior citizens?
Can I have multiple Fixed Deposits in the same bank?
Can I open a Fixed Deposit online?
What happens if the bank or institution offering the FD faces financial trouble?
Can I have multiple Fixed Deposits in the same bank?
Can I break my Fixed Deposit in case of an emergency?
Can NRIs (Non-Resident Indians) invest in Fixed Deposits in India?