All You Need to Know About Fixed Deposits
Posted on Tuesday, November 21st, 2017 | By IndusInd Bank
Fixed deposits have long been the preferred choice among Indians looking to build substantial savings. Fixed deposits (FDs) are one of the simplest tools of investment, allowing you to deposit a lump sum amount with your bank for the tenure of your choosing. At the end of the tenure, your initial amount accrues interest thanks to the pre-determined rate of interest over the investment period, giving you a guaranteed return on investment. The continued popularity of fixed deposits is based on multiple factors that have been expanded on below.
Safe Form Of Investment
Fixed deposits are one of the safest forms of investment for the simple reason that they come under the purview of the Deposit Insurance and Credit Guarantee Corporation (DICGC). The DICGC insures all FDs with nationalized banks for up to INR 1 Lakh in each bank. By investing INR 1 lakh across various banks, you are assured of the highest safety. Additionally, the pre-determined interest rate on your FD remains constant throughout, thereby keeping your investment safe irrespective of any fluctuations in the market during your FD’s tenure.
High Rate Of Interest
Fixed deposits offer you a much higher rate of interest on your returns when compared to savings accounts. Moreover, FDs are the preferred choice among senior citizens as they receive at least 0.5% higher interest rate than regular customers.
Fixed deposits are quite flexible, allowing you to choose the tenure, be it as short as 7 days or as long as 10 years. Supposing you have an event 5 years from now that requires you to have a certain amount of funds. By investing in an FD for 5 years, you will have your funds right when you need them. Choosing between a simple interest and a cumulative interest FD is also a beneficial flexibility offered by fixed deposits. With simple interest, the interest is paid and credited to you every month or every three months, providing you with a steady source of income. In cumulative FDs, the compounded interest is reinvested with the principal amount, providing you with the interest upon maturity of your investment.
If you are looking to save tax , then you have the option of investing in fixed deposits that are approved under Section 80(C). This can be done by investing up to INR 1 Lakh for a lock-in period of 5 years and claiming the deduction under 80(C). However, the interest you receive on these FDs is still taxable. The interest is taxable on the basis of your tax slab. For instance, if you fall under the 10% tax slab, then your annual interest will be taxed at said 10%. You should note that annual interest earned up to INR 10,000 from FDs is exempt from tax. Your bank deducts a TDS if the annual interest exceeds this amount. However, if your total income is below the taxable limit, then submitting a Form 15 G or H will help avoid the TDS being deducted.
Another great benefit of fixed deposits is that if you urgently require money for an emergency, then you can avail a loan against your fixed deposit without having to break it. Banks offer up to 90% of the principal amount of your FD. This allows you to keep your FD intact, earning interest on it even as you avail the loan.
With such lucrative advantages, it is no wonder that fixed deposits remain a popular mode of investment among Indians looking for stable and fixed returns.