5-Points Guide To Understand Your Fixed Deposit


BENGALURU: The most preferred investment option to save money in India is through Bank deposits. The main reason behind this is that these deposits are considered safe when compared with the mutual funds and stock markets. There are two key types of term deposits – fixed deposits and recurring deposits. A fixed deposit is where you invest all your money at one-go. A recurring deposit, on the other hand, is when you invest your money in installments. Below is a 9 point guide as compiled by Yahoo! Finance to make you understand the basic funda of Fixed Deposits (FDs)

Fixed return

Your funds are parked in a particular bank deposit for a fixed period of time, when you opt for a term deposit. Banks offer you to pay a fixed interest, in exchange of for holding your money for a longer period of time. This is also a reason why deposit is termed as a very safe option. Your profit from the investment is the interest which is paid to you by the bank. A higher interest is paid to the senior citizens. FDs currently offer rates up to 10.25% as interest rates. A lower interest rate is offered by recurring deposits than FDs.

Tenure of your choice

A variety of tenures comes with the term deposits. Tenure can be defined as the amount of time the money is held with the bank. The tenure only depends on your will. Tenure can be as short as 7 days and as long as 10 years.

Interest payout

Paying your interest in another feature that can be decided by you! This can be done at the end once the deposit matures. If not, you can opt for regular interest payments on quarterly, half-yearly or annual intervals. Some banks also offer you a choice to reinvest your interest payments.

Breaking a deposit

The basic rule of a term deposit is that once your money has been deposited, you lose the access to this money. You will be fined a particular sum or your total interest payment may be reduced, in case you want to reclaim your deposit amount. Sometimes, banks may only allow you to withdraw the money after a certain minimum period. Ensure you get these details before investing.

Overdraft against your fixed deposit

You can borrow on the basis of your fixed deposits, if you are in desperate need of liquid cash, and you have withdrawn all of your funds in your bank accounts. This facility is known as the overdraft facility. However, the amount of money that you can withdraw is limited. Moreover, it may not be interest-free. Check with your banks before opting for the facility.

Tax savings

Tax-saving purposes are served with the banks giving fixed deposits service. Your total taxable income is reduced by the amount you save in such deposits. Thus this service helps you in saving taxes. A minimum tenure of 5 years and a maximum of 10 years is served by a depositor under tax-saving deposits. The maximum amount you can invest in such a deposit for tax purposes has been capped by the government as up to Rs 1 lakh per year. However, the interest you earn will be taxable.

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