Fixed Deposits in Banks
Bank Fixed Deposits are also called Term Deposits in India. Popularly, it is just called Bank FD or simply FD. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a fixed time period with a fixed rate of interest and hence it is called a fixed deposit. The rate of interest for Bank Fixed Deposits depends on the maturity period or the term period. It is higher in case of longer maturity period but nowadays sometimes banks offer higher rates for certain shorter periods also to be more liquid/cash rich at the end of year etc. There are large number of options in maturity period and it ranges from 15days to 5 years. The interest rate can be compounded quaterly, half-yearly or annually and varies from bank to bank. There is no upper limit but most banks have minimum deposit amount of Rs 1000/- . Most banks also offer loan / overdraft facility against fixed deposits. Premature withdrawal is permissible but it involves loss of some interest and some extra fees.
Things You Should Remember/Ask Before Opening a FD Account
Before opening a fixed deposit account
- Check the financial position of the bank. Try to go for the most popular/big banks.
- Try to check the rates of interest for different banks for different periods.
- Always check for the fees for early withdrawal. Also, instead of putting a big amount in one fixed deposit, keep the amount in five or ten small deposits. This way, in case of any premature withdrawal of partial amount, then only one or two deposits may need to be prematurely encashed. Thus, the loss of interest will be less than if a single big deposit were to be encashed.
- Check deposit receipts carefully to ensure that all details have been properly and accurately filled in. Do not leave the renewal column unfilled. Otherwise, on maturity the fixed deposit amount will go back into an FD.
- Before investing in a FD it is important to consider the rate of interest and the inflation rate. A high inflation rate can eat into your real returns. So, it is vital to have a look at the inflation rate before arriving at the real rate of interest.
Advantages of Fixed Deposit
- Safety: Fixed deposits with the banks in india are nearly 100% safe as all the banks operating in the country, whether nationalised, private, or foreign, are governed by the RBI’s rules and regulations which are among the most stringent rules in the world. Till recently, all bank deposits were insured under the Deposit Insurance & Credit Guarantee Scheme of India, which has now been made optional. Nonetheless, bank fixed deposits are among the safest modes of investment.
- Loans against FD: You can also get loans up to 75- 90% of the deposit amount from banks against fixed deposit receipts. Please note that the interest charged will be slightly more than the interest earned by the deposit but this option can be availed if you need loan for a shorter period.
- Fixed Deposits (FDs) with a maturity period of 5 years or more in a Scheduled bank is eligible for tax deduction under section 80C. However, the interest earned on the deposit is taxable.
- Tax will be deducted at the source (TDS), if the interest income on a fixed deposit (FD) per annum exceeds Rs.10000.
How To Open a Bank Fixed Deposit Account
You can open a Fixed Deposit(FD) account with any bank, be it nationalized, private or foreign and make the deposit. However, some banks insist that you open a savings account with them to operate a FD.
Many major banks now provide the option of creating a FD online.