A Fixed Deposit (FD) is a financial instrument offered by banks and NBFCs. It is a popular savings tool in India. FDs provide a safe way to earn interest on your money over a fixed period. This period is known as the ‘tenor’.
So, how does an FD work? When you open an FD account, you deposit a lump sum of your hard-earned money for a fixed tenor. The bank or NBFC agrees to pay you interest at a specified rate. This rate is predetermined and does not change during the tenor.
The interest on an FD can be compounded or paid out at regular intervals. If you choose compounding, the interest is added to the principal amount. This allows you to earn interest on the new, larger amount in subsequent periods. If you choose regular payouts, the interest is credited to your savings account. This can be done monthly, quarterly, half-yearly, or annually.
Benefits of FDs
Safety
FDs are one of the safest investment options. The principal amount is secure, and the returns are guaranteed.
Fixed Returns
The interest rate remains constant throughout the tenor. This means you know exactly how much you will earn.
Flexibility
You can choose the tenor of your FD. It can range from a few days to several years.
Easy to Open
Opening an FD account is simple. You can do it online or visit your bank or NBFC branch.
Interest Rates on FDs
Interest rates on FDs vary between banks and NBFCs. The rates also depend on the tenor and the amount deposited. Below is a table showing interest rates from a few banks and NBFCs as of July 2024:
Note: Interest rates are subject to change. Please check the official websites of the banks and NBFCs for the latest rates.
Types of FDs
Standard FD
This is the most common type. You deposit a lump sum for a fixed tenor at a fixed interest rate.
Tax-saving FD
Comes with a lock-in period of 5 years. Offers tax benefits under Section 80C of the Income Tax Act, 1961.
Senior Citizen FD
Available for individuals above 60 years. Offers higher interest rates than standard FDs.
Cumulative FD
Interest is compounded and paid at the end of the tenor.
Non-Cumulative FD
Interest is paid out at regular intervals (monthly, quarterly, or annually).
Documents Required for Fixed Deposit
To open an FD account, you need to submit the following documents:
Identity Proof
Aadhaar card, PAN card, passport, or voter ID.
Address Proof
Utility bills, Aadhaar card, passport, or voter ID.
Photographs
Passport-sized photographs.
Bank Account Details
If you are opening the FD with a bank.
How to Open an FD Account
- Choose the Bank or NBFC
Research the interest rates offered by different institutions. Choose the one that offers the best rate for your desired tenor.
- Select the Tenor
Decide how long you want to keep the money in the FD.
- Fill the Application Form
Provide personal details and the amount you wish to deposit.
- Submit the Documents
Provide the required documents for verification.
- Deposit the Amount
Request for transferring the money to the FD account.
Premature Withdrawal
Sometimes, you may need to withdraw your FD before the end of the tenor. This is called premature withdrawal. Banks and NBFCs allow premature withdrawal, but it comes with penalties. The penalty could be a lower interest rate or a small fee. It is important to understand the penalty rules before opting for premature withdrawal.
Tax Implications
The interest earned on a Fixed Deposit is subject to taxation. It is included in your income and taxed according to your applicable income tax slab. Issuers deduct Tax Deducted at Source (TDS) if the interest exceeds ₹40,000 in a financial year. For senior citizens, the limit is ₹50,000. To avoid TDS, you can submit Form 15G. Senior citizens should submit Form 15H. These forms declare that your total income is below the taxable limit.
Renewal and Maturity
At the end of the tenor, the FD matures. You can choose to renew the FD or withdraw the maturity amount. If you do not give any instructions, some banks and NBFCs automatically renew the FD. The renewal is for the same tenor at the prevailing interest rate. Review the interest rates at maturity. Decide whether to renew or withdraw the amount.
Conclusion
Fixed Deposits are a reliable and straightforward savings tool. They offer safety, fixed returns, and flexibility in tenor. By understanding how FDs work and the benefits they offer, you can make informed decisions. Knowing the documents required will help you maximise your savings.
For the latest interest rates, always check the official websites of banks and NBFCs. This will provide you with detailed information.