An Introduction to Investing in Fixed Deposits In India

Despite the myriad of investment instruments currently available in the market, fixed deposits have always been a safe haven for your funds.

They yield regular interest and are quite secure, especially when you choose to hold an account with a financier. As an investor, you can choose to open a fixed deposit either with a financial institution or a company. And in terms of safety, financial institution deposits gain have the upper hand over company deposits.

With a tenure ranging from 7 days to 10 years, the rate of interest that you earn depends on the financier and the scheme under which you invest in the fixed deposit. At the end of the specified term, your money is returned along with the interest.fixed-deposit

Features of Fixed Deposits

  • Fixed deposits enable you to earn an income out of the surplus funds in your hands. The interest varies from bank to bank and certain banks provide a higher interest rate for senior citizens (currently, most banks offer 0.5% more than the base rate).

  • Safety is extremely important when you want to store your hard-earned money. Fixed deposits with nationalised banks are the best in terms of safety. Furthermore, a fixed deposit in India of up to Rs.1 lakh is covered by deposit insurance when you invest in a financial institution.

  • The interest on the fixed deposit is usually credited to your savings bank account. By choosing the reinvestment scheme, you can compound the interest on a quarterly basis.

Types of Fixed Deposits

Fixed deposits can either take the shape of bank deposits or company deposits. Though you might be enticed to invest in a company deposit, thanks to the higher rate of interest; there is always an element of added risk. The credit rating of the company will help you to make your choice of investment.

Things you Should be Aware of For Fixed Deposits

  • The interest that you earn on fixed deposits is tax-adjusted and not tax-free. The interest you earn as income is included in your ‘income from other sources'. You can also claim tax deduction under section 80C when you invest in a 5-year tax saving deposit.

  • You are also liable to pay TDS if the interest on your fixed deposits with a bank exceeds Rs.10,000 in a financial year. To avoid this situation, you can split your fixed deposit's amongst various banks or submit Form 15G/15H (Non-deduction of TDS for senior citizens and having no taxable income)

  • If you take out your fixed deposit before maturity, you will earn a lower rate of interest (usually 1% less than the rate at which you opened the fixed deposit).

  • Fixed deposit cannot beat inflation because the rate of return on fixed deposits adjusted for tax will be less than the rate of inflation.

Barring the minor drawbacks, fixed deposits continue to be a hot savings instrument that offers you great returns.


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