What is Fixed Deposit? Information, advantages and disadvantages of fixed deposits. How to get income tax on fixed deposits and how to calculate interest or interest on FD. Who should get FD and if you are thinking that take a mutual fund, get an SIP or get a fixed deposit, then Fixed Deposit will try to explain to you in which circumstances it would be right to invest. Benefits of Fixed Deposit and rules.
Fixed Deposit meaning
Fixed Deposit or FD FD is also known as a term deposit or time deposit. In It is also called term deposit. Fixed means fixed, fixed or permanent and deposit means deposit. In simple words, Fixed Deposit is a fixed deposit at a fixed rate of interest. Fixed Deposit You can get it done at the bank, post office or any NBFC. Some companies also accept Fixed Deposit. Most people prefer to get fixed deposits in banks or post offices. Read about this in detail before investing in a fixed deposit in NBFC.
Fixed Deposit gets better interest
Usually, FDs get more interest from a savings account. Before getting the FD, find out how the interest will be added to the Fixed Deposit account. Some banks add interest on an annual basis and some banks add interest to the account on a quarterly basis. The longer the period for which FD is made, the higher the rate of interest generally increases.
Can also break Fixed Deposit
If you break the Fixed Deposit before maturity, it is known as premature withdrawal. In such cases, interest is paid at the applicable rate at the time of withdrawal. For example, if an FD is made for 5 years at 8%, but after 2 years it is taken away. If the rate applicable on the date of deposit for 2 years is 5 percent, then interest will be paid at 5 percent. Banks may also impose some penalty for premature withdrawal.
Fixed Deposit Interest Rate
The interest rate on fixed deposits can vary from bank to bank, but usually there is not much difference among them. The interest rate on Fixed Deposit is higher than an ordinary savings account. The rate can range from 4% to 8% depending on the time period of Fixed Deposit. Some banks also pay some higher interest on large deposits. Read here how to calculate interest on bank deposits.
Types of Fixed Deposits
- Normal Fixed Deposits Normal Fixed Deposits
- Tax Saving Fixed Deposit Tax Saving Fixed Deposit
- Senior Citizens Fixed Deposit Senior Citizens Fixed Deposit
- Cumulative Fixed Deposit Cumulative Fixed Deposit
- Non Cumulative Fixed Deposit Non Cumulative Fixed Deposit
- Flexi Fixed Deposit Flexi Fixed Deposit
Normal Fixed Deposits Normal Fixed Deposits
In this, the money is deposited in the bank for a fixed period and the savings account gets more interest.
Tax Saving Fixed Deposit Tax Saving Fixed Deposit
Its duration is five years and it is exempted under 80c on deposits up to ₹ 1,50,000.
Senior Citizens Fixed Deposit Senior Citizens Fixed Deposit
This scheme is meant for senior citizens ie people above 60 years of age. The scheme attracts more interest than other Fixed Deposit schemes.
Cumulative Fixed Deposit Cumulative Fixed Deposit
In this scheme, interest is added to the principal on quarterly, half yearly or yearly basis and gets on maturity.
Non Cumulative Fixed Deposit Non Cumulative Fixed Deposit
In this scheme, interest is paid on monthly, quarterly, half-yearly or annual basis so that the day-to-day expenses of the account holder can be used.
Flexi Fixed Deposit Flexi Fixed Deposit
This scheme is linked to the savings account. Once the savings account balance reaches a specified amount, it is converted into Fixed Deposit. If required, the amount of Fixed Deposit is also returned to the savings account.
Options for Fixed Deposit Options for opening fixed deposits
There are several options for opening Fixed Deposit, the main ones being:
Advantages of Fixed Deposit
Fixed Deposit or FD is one of the most popular savings instruments available in the country. People prefer to invest in FDs due to flexibility and liquidity. It is an easy and safe method of investment. Your investment is safe and maturity value ie maturity amount is pre-determined and guaranteed. Whenever you need, you can make money out of it. Fixed Deposit usually earns more interest than a savings account. Some banks also offer you a loan or credit card at fixed interest rates in exchange for Fixed Deposit.
Fixed deposits are one of the most popular financial products and there are many reasons as well. Here are some of the major benefits of fixed deposits, which we will discuss in detail:
- Guarenteed Return Guaranteed Return
- Flexibility Flexibility in term
- High Interest More Interest
- Compounded Interest compound interest
- Regular Income
- Easy to Open Easy to open
- Easy to Close Easy to close
- Best for Senior Citizones for Senior Citizens
- Loan Facility
- Tax Saving
Guarenteed Return Guaranteed Return
Return on investment is guaranteed. Apart from the amount deposited in the FD, you will get interest at the prevailing interest rate at the time of depositing it. Market fluctuations or reduction in interest rates will not affect your return on investment. This is why most experienced investors also prefer to keep a part of their investment in fixed deposits.
Flexibility Flexibility in term
The tenure for fixed deposits can be very flexible which ranges from 7 days to 10 years depending on the client’s requirements. You can make multiple fixed deposits at the same time for the same or different tenures at the same bank. You will receive a separate receipt for each FD.
High Interest More Interest
The rate of interest on fixed deposits is very high as compared to savings account. Interest rates vary depending on the duration of the fixed deposit. Most long term FDs have a higher interest rate.
Compounded Interest compound interest
Customers can choose the frequency of interest they want to receive, whether it is on a monthly, quarterly or annual basis. This will become another source of income for the customer. Interest on fixed deposits is counted as compound. Here you can read in detail how to calculate interest in bank accounts.
The interest on Fixed Deposit becomes a regular and safe source of income. You put your savings on earnings. Can get regular income without doing anything.
Easy to Open Easy to open
You can open a fixed deposit easily by going to the bank where you have an account. You can also open it from mobile banking sitting at home. The bank makes your Fixed Deposit by taking money from your bank account.
Easy to Close Easy to close
While Fixed Deposit automatically closes after the fixed time and the money gets added to your account with interest, you can easily close it even before time. Prematurely dismantling it may reduce interest.
Best for Senior Citizones for Senior Citizens
Fixed deposits are very popular among senior citizens. The first reason for this is easy to make, it is not risky and the senior citizen gets higher interest rate which can be 0.5% to 1% higher than the interest paid to ordinary people. Senior citizens also get an additional tax rebate on the interest.
If you need money in an emergency then it is easy to take a loan based on your fixed deposit. Customers can also take a credit card or overdraft in return. The customer can borrow up to 90% of the principal amount of the fixed deposit. The customer also keeps getting interest against taking a loan against FD. The customer has to pay interest on the loan taken which will be slightly less than the market rates.
Tax exemption under Section 80C of Income Tax on five years Fixed Deposit. The interest you earn from tax-saving FDs will be taxable. TDS is not deducted if interest is less than ₹ 40000 in a year, but interest income has to be deposited in your taxable income.
Disadvantages of Fixed Deposit
If the rate of interest is higher than the rate of inflation, then there is real benefit in investment. If the interest rate on FD is less than the inflation, then the purchasing power of the amount you get at the time of maturity can be less than the amount invested. NBFCs may have a higher rate of interest from the bank. Read here on our site about fixed deposits in NBFC.
Fixed deposit losses are
- Low Interest Low interest
- Better investment options available
- Income Tax
Low Interest Low interest
Even though Fixed Deposit earns more interest from a savings account, it is sometimes less than the rate of inflation due to which the real income is very little or no.
Better investment options available
Though Fixed Deposit keeps your money safe, but if you are willing to take the risk, you can get better returns in mutual funds, stock market and real estate.
The interest you earn from tax-saving FDs will be taxable. Interest on all types of Fixed Deposit gets added to your taxable income. Your bank can deduct TDS on the interest paid on all your fixed deposits.
Get Mutual Fund or Get Fixed Deposit
Where to invest Mutual Funds or FD. Now says that you should get a mutual fund or get an FD. If you are investing for a long period i.e. more than five years and are willing to take a risk on your investment, then you can invest in Mutual Fund through SIP. Mutual funds can give you more returns than FDs, but there is also a risk in them. If you are investing for less than five years and want to invest risk-free, then you should get a Fixed Deposit.