Known as one of the safest investment options, fixed deposits are a means of making lump sum growth at a fixed interest rate over a period of time. Both banks and non-banking financial companies (NBFCs) offer fixed deposits with different tenures. According to financial advisors, fixed deposits are the most preferred option for risk averse investors. In principle, there is little or no risk of loss in bank fixed deposit investments. Senior citizens above 60 years of age often opt for fixed deposits because of its assured withdrawal facility. It is to be noted that senior citizens are eligible for additional rates, usually 0.25 per cent to 0.65 per cent over the existing rate on fixed deposits.
Features and Benefits of Fixed Deposit or Bank FD:
a) The interest rates of fixed deposits are unaffected by market fluctuations. Hence it is safer as compared to other investment vehicles available in the market.
b) There is no limit on the maximum deposit or number of fixed deposits that one can open. Hence, investors can park their money in multiple fixed deposits at the same time with different interest rates and earn more.
c) The tenure of fixed deposits ranges from 7 days to 10 years. Flexible tenure has also made fixed deposits one of the attractive investment options among investors.
d) Investors on Fixed Deposits will get guaranteed returns on maturity. There is an option to choose how the interest will be credited as per your requirements on monthly, quarterly or yearly basis.
d) Apart from assured returns, bank FDs are loaded with many features like insurance, tax benefits and overdraft facility. Fixed deposits up to Rs 1 lakh are insured by the Reserve Bank of India.
Those who invest in bank FDs are eligible for overdraft facility against fixed deposits. You can raise money through overdraft facility during financial emergency.
I) Tax Benefits on Fixed Deposits:
If you invest in tax saving fixed deposits, you will get tax exemption of up to Rs 1.5 lakh under section 80C of the Income Tax Act. Interest earned from fixed deposits will be tax deducted at source (TDS) as per income tax bracket. However, the investor can submit Form 15G and senior citizens can submit Form 15H to avoid this deduction. In addition, senior citizens can also claim deduction up to Rs 50,000 on interest earned under section 80TTB.
Who can open Fixed Deposit?
The following entities are eligible to open fixed deposits in India. 1) Residents of India, 2) Non-resident Indians (NRIs), 3) Minors or those below the age of 18 years, 4) Senior citizens, 5) Companies, 6) Partnership firms, 6) Joint investors, 7) Clubs or societies 8) Sole Proprietorship.
Key points to note before opening a fixed deposit
When you are investing your hard earned money in a scheme for good returns, it is important to know which one is giving you better returns. Therefore, before opening a fixed deposit account, it is necessary to do a quick study and comparison of the various fixed deposit rates offered by different banks.
There are many fixed deposits available in the market – Tax-saving Fixed Deposits, Cumulative Fixed Deposits, Non-Cumulative Fixed Deposits, Flexi Fixed Deposits. Do your own research about the pros and cons of each of them and choose what is best for you.
If you are going for a relatively lesser known NBFC for some extra cash at the end of maturity, you should also check the safety rating of the fixed deposit. Lastly, choose a bank that offers hassle free customer service.
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