Fixed Deposit
Introduction:
A fixed deposit is an investment option offered by banks and non-banking financial companies. It typically yields higher returns than a regular savings account.
The term 'fixed deposit' comes from its predetermined investment duration, which can be short-term or long-term based on the investor’s financial strategy. Interest rates for fixed deposits differ among banks and companies.
Investors in fixed deposits should note that withdrawing funds before the maturity date incurs financial penalties. Although early withdrawal is feasible in emergencies, it comes with a cost.
Who Provides Fixed Deposits?
Fixed deposit investments are available through banks, post offices, and various non-banking financial companies in India. Investors have numerous choices for opening fixed deposit accounts, but they should evaluate interest rates, company reputation, and other relevant factors before investing their money.
Anyone can open a fixed deposit account at banks or non-banking financial companies across the country. Even those without a bank account can invest in fixed deposits via post office accounts.
Fixed Deposit Interest Rates April 2024
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Overview of Fixed Deposit Investment Options
Corporate Fixed Deposit
These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.
Standard Fixed Deposit
Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.
Senior Citizen Fixed Deposit
People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.
Tax-saving Fixed Deposit
If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.
Cumulative Fixed Deposit
In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.
Non-cumulative Fixed Deposit
Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.
Flexi Fixed Deposit Plans
In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.
NRO Fixed Deposit Accounts
Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.
NRE fixed deposit accounts
Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.
Corporate Fixed Deposit
These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.
Standard Fixed Deposit
Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.
Senior Citizen Fixed Deposit
People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.
Tax-saving Fixed Deposit
If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.
Cumulative Fixed Deposit
In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.
Non-cumulative Fixed Deposit
Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.
Flexi Fixed Deposit Plans
In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.
NRO Fixed Deposit Accounts
Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.
NRE fixed deposit accounts
Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.
Corporate Fixed Deposit
These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.
Standard Fixed Deposit
Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.
Senior Citizen Fixed Deposit
People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.
Tax-saving Fixed Deposit
If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.
Cumulative Fixed Deposit
In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.
Non-cumulative Fixed Deposit
Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.
Flexi Fixed Deposit Plans
In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.
NRO Fixed Deposit Accounts
Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.
NRE fixed deposit accounts
Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.
Corporate Fixed Deposit
These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.
Standard Fixed Deposit
Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.
Senior Citizen Fixed Deposit
People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.
Tax-saving Fixed Deposit
If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.
Cumulative Fixed Deposit
In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.
Non-cumulative Fixed Deposit
Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.
Flexi Fixed Deposit Plans
In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.
NRO Fixed Deposit Accounts
Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.
NRE fixed deposit accounts
Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.
Current Interest Rates for Fixed Deposits
Interest rates on fixed deposits are not standardized and vary significantly depending on the bank or non-banking financial company (NBFC) providing the investment.
Different institutions offer varying rates on deposits. Additionally, the interest rates can be influenced by the investor's age.
Senior citizens, for instance, typically receive higher returns compared to those under 60 years of age.
Factors such as the duration of the fixed deposit, the financial institution involved, and the specific type of FD account or plan also impact the rates.
However, investors generally receive higher returns on fixed deposits compared to savings accounts.
Eligibility Criteria for Opening Fixed Deposits
Various entities can open a fixed deposit account with a bank or non-banking financial company (NBFC) in India, including:
Resident Indian citizens
Non-Resident Indians (NRIs)
Hindu Undivided Families (HUFs)
Clubs
Societies
Partnership firms
Associations
Sole-proprietorship businesses
Public and private companies
Trusts
Government departments
There is no age restriction for opening a fixed deposit account; minors of any age may open one through a legally appointed guardian. It's important to note, though, that while minors older than 10 years can independently open a savings bank account, banks may set limits on age and the amount for minors managing FD accounts on their own.
A minimum investment amount is also required to open an FD account, which varies by financial institution. Some require a minimum deposit of Rs. 5,000, while others may allow opening an account with just Rs. 100.
Investors can choose deposit tenures ranging from 7 days to ten years.
Documents Required for Opening Fixed Deposits
When opening a fixed deposit account, you'll need to provide basic KYC (Know Your Customer) documents along with the account opening form. Below is a detailed list of required documents depending on the type of customer or entity:
For Existing Customers: If you already have an account and are an existing customer of the bank or NBFC, typically no additional documents are needed as your KYC information is already on file. You can initiate a fixed deposit either through net banking or by submitting a simple application form at your local branch.
For New Customers: New customers must provide the following documents to open a fixed deposit:
Recent colored passport-sized photographs
Identity proof such as a driving license, PAN card, Aadhaar card, passport, or voter’s ID card.
Address proof like a driving license, Aadhaar card, passport, voter’s ID card, recent utility bills, rent agreement, or property deed.
For Public/Private Limited Companies:
PAN card of the company
Certificate of registration or incorporation
Recent bank statement
Recent utility bills for address verification
KYC documents for authorized signatories
Board resolution authorizing the opening of the FD account
Passport-sized photographs of the authorized signatory
For Hindu Undivided Family (HUF):
HUF deed and declaration
PAN card of the Karta (head of the family)
KYC documents of the Karta, including identity and address proof
Passport-sized photographs of the Karta
For Trusts:
Copy of the Trust Deed
Trust's registration certificate
Board resolution authorizing the opening of the FD account
Passport-sized photographs of the authorized signatory
For Registered Societies:
PAN card of the society
KYC documents of all authorized signatories
Recent bank account statement
Recent utility bills for address verification
Certificate of registration or incorporation
Copies of the Memorandum and Articles of Association
Board resolution authorizing the opening of the FD account
Passport-sized photographs of the authorized signatory
These documents ensure compliance with regulatory requirements and help in the verification process for opening a fixed deposit account.
Understanding the Lock-in Period for Fixed Deposits
The lock-in period of a fixed deposit, also known as the maturity period, is the duration during which investors cannot withdraw their funds without incurring financial penalties.
For tax-saving FDs, it is strictly prohibited to withdraw the funds before the lock-in period ends.For other types of FDs, while premature withdrawal is possible, it generally results in penalties.
The specific terms of these penalties can vary between different investment plans.However, it is advisable to allow the deposit to reach maturity to ensure full benefits.
Terminating a fixed deposit early can result in a loss of potential interest earnings, thereby reducing the overall returns from the investment.
Role of Fixed Deposits in an Investment Portfolio
Investing in market-linked instruments carries risks, particularly when aiming for higher returns.
To achieve a balanced financial portfolio, it's crucial for investors to include safer investment options as well.
Fixed deposits offer a secure investment avenue with guaranteed returns, contrasting with higher-risk options.
Thus, even if investors incur losses from other ventures, they can offset some of those losses through the stable earnings from fixed deposits.
This strategy can help maintain financial stability in their overall investment portfolio.
Benefits of Investing in a Fixed Deposit Account
IFixed deposit accounts offer several advantages that make them appealing to investors:
Stable Returns: These accounts provide a constant interest rate, ensuring predictable and steady returns.
Low Risk: As FDs are not impacted by market volatility, they are considered low-risk, making them suitable for conservative investors.
Capital Preservation: The principal amount is secure, and investors are assured of receiving their initial investment plus the accrued interest at the end of the maturity period.
Flexible Tenure Options: Investors can select from various tenure lengths offered by banks, ranging from a few months to several years, to align with their financial objectives.
Ease of Investment: Setting up a fixed deposit account is easy, requiring only minimal paperwork and a straightforward application process.
Regular Income Stream: Particularly beneficial for retirees, FDs can provide a consistent income stream through periodic interest payouts (monthly, quarterly, or annually).
Loan Facilities: Fixed deposits can also serve as collateral for loans, offering financial flexibility while keeping the deposit intact.
Tax Benefits: Certain types of fixed deposits qualify for tax deductions under specific sections of the Income Tax Act, promoting long-term savings.
No Market Dependency: The performance of FDs is independent of market conditions, offering stability regardless of economic fluctuations.
Ideal for Short to Medium-Term Goals: FDs are well-suited for meeting short to medium-term financial objectives, such as purchasing a vehicle, funding education, or planning a holiday.
Benefits of Investing in a Fixed Deposit Account
Drawbacks of Fixed Deposit Accounts
Fixed deposit accounts come with certain limitations, which are outlined below:
Taxation on Interest: The interest income from fixed deposits is taxable under "Income From Other Sources" when you file your Income Tax Returns (ITR). For those seeking tax-free earnings, options like Tax-Saver FDs, ULIPs, PPF, and government bonds may be more suitable.
TDS Applicability: TDS (Tax Deducted at Source) is deducted from the interest earned on fixed deposits, which can reduce the overall returns from your investment.
Comparatively Lower Interest Rates: Generally, fixed deposits offer lower interest rates, typically between 5% to 9% per annum, which may be less than other investment avenues, potentially limiting your investment growth.
Interest Rates and Inflation: Sometimes, the interest rates on fixed deposits may not keep up with inflation, leading to a decrease in the real value of your returns over time.
Fixed Interest Rates: Unlike other investments where rates might fluctuate, fixed deposits maintain a constant rate throughout their tenure. This means returns do not increase even if market or economic conditions improve.
Limited Access to Funds: Your funds are locked in for the duration of the deposit, restricting access to your money. Early withdrawal is possible but usually incurs penalties, affecting your total returns.
Understanding Loan Against Fixed Deposit
Tax Implications on Fixed Deposit Earnings
Understanding Loan Against Fixed Deposit
Investors with fixed deposits can secure a loan against their FD holdings. The maximum loan amount available can differ from one bank to another and is typically a specified percentage of the fixed deposit value.
The interest rates for loans against fixed deposits are generally lower than those for unsecured loans. Investors looking to take advantage of this should carefully compare interest rates.
The repayment period for such a loan is usually capped at the maturity term of the associated fixed deposit.
Tax Implications on Fixed Deposit Earnings
How to Open a Fixed Deposit Account Online
Interest earned from fixed deposits is subject to Tax Deducted at Source (TDS) according to the rules set forth in the Income Tax Act. This interest income is then reported on Income Tax Returns under "Income from Other Sources."
The Income Tax Department applies the TDS against the individual's total tax liability. However, TDS on interest income is only deducted when the total interest earnings across all sources exceed Rs. 40,000 annually.
If earnings are below this threshold, individuals should submit Form 15G/H to the financial institution to avoid TDS. Form 15G/H can also be submitted for interest earnings above Rs. 40,000, but in such cases, individuals must ensure they meet any remaining tax obligations themselves.
Additionally, if an individual invests in a tax-saving FD, they are eligible to claim a tax exemption on the principal amount up to Rs. 1.5 lakh per financial year.
How to Open a Fixed Deposit Account Online
Many banks and financial institutions now enable the opening of fixed deposit accounts online, which is a straightforward and quick process. Here are the options available for opening an online fixed deposit account:
For Existing Customers: If you already have an account, you can log into your net banking portal and directly open a fixed deposit account.
Using Mobile Apps: You can download and use the bank’s or financial institution’s mobile app to open an account right from your smartphone.
For New Customers: Visit the official website of the financial institution where you can apply to open a new account.
When applying as a new customer, you will need to fill out an online application form and upload the necessary documents. Additionally, you will need to make your initial deposit through a digital payment method.
What is a fixed deposit?
A fixed deposit is a type of savings account where money is deposited for a fixed period and earns interest at a predetermined rate.
How safe are fixed deposits?
Fixed deposits are considered very safe as they are not affected by market fluctuations and often guaranteed by the bank or financial institution.
Can I withdraw money from my fixed deposit before maturity?
Yes, but early withdrawal may incur penalties and result in lower interest earnings.
Do fixed deposits offer tax benefits?
Tax-saver fixed deposits qualify for tax deductions under Section 80C of the Income Tax Act but come with a lock-in period.
What documents are required to open a fixed deposit account?
Typically, you need identity proof, address proof, and sometimes a PAN card, along with the completed application form.
Drawbacks of Fixed Deposit Accounts
