Considered one of the safest investment options, fixed deposits are an instrument to grow a lump sum at a fixed interest rate over a fixed term. Banks and non-bank financial corporations (NBFCs) offer fixed deposits spread over different terms. According to financial advisors, fixed deposits are the preferred option for risk averse investors. There is little or no risk of loss of principle in fixed deposit banking investments. Senior citizens, those over the age of 60, often opt for a fixed deposit, given its assured return feature. It should be noted that senior citizens are eligible for additional rates, usually 0.25% to 0.65% more than the existing rate on term deposits.
Features and Benefits of Fixed Deposits or Bank FDs:
a) Term deposit interest rates are not affected by market fluctuations. It is therefore safer than other investment vehicles available on the market.
b) There is no limit to the maximum deposit or the number of fixed deposits that can be opened. Therefore, investors can place their money in several fixed deposits at the same time with different interest rates and earn more.
c) The duration of fixed deposits varies from 7 days to 10 years. The flexible scheme has also made fixed deposits one of the attractive investment options for investors.
d) Investors will obtain a guaranteed return at maturity on term deposits. It is possible to choose how the interest will be credited according to your needs on a monthly, quarterly or annual basis.
d) Apart from assured returns, bank FDs come with multiple features such as insurance, tax benefits and overdraft feature. Fixed deposits are insured up to Rs 1 lakh by the Reserve Bank of India.
Those who invest in bank DFs are eligible for an overdraft facility on term deposits. You can raise funds through an overdraft facility during a financial emergency.
e) Tax benefits on term deposits:
If you invest in a tax-saving fixed deposit, it will earn you a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Interest earned on the fixed deposit will be subject to withholding tax (TDS), depending on the income tax bracket. However, the investor can submit Form 15G and seniors can submit Form 15H to avoid this deduction. Additionally, the elderly can also claim a deduction of up to Rs 50,000 on interest earned under Section 80TTB.
Who can open a fixed deposit?
The following entities are eligible to open fixed deposits in India. 1) Resident Indians, 2) Non-Resident Indians (NRIs), 3) Minors or persons under the age of 18, 4) Seniors, 5) Companies, 6) Partnership companies, 6) Co-investors, 7) Clubs or corporations 8) Sole Proprietorship.
Key things to consider before opening term deposits
When parking your hard-earned cash for a good return in a program, it’s important to know which is giving you the best return. So, a quick study and comparison of the different fixed deposit rates by different banks, is a must before opening a fixed deposit account.
There are several term deposits available in the market – tax saving term deposits, cumulative term deposits, non-cumulative term deposits, flexible term deposits. Do your own research on the pros and cons of each and decide which is best for you.
If you’re going for relatively lesser-known NBFCs for extra money at the end of the term, you should also look into fixed deposit security ratings. Finally, choose a bank that offers hassle-free customer service.
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