Touted as one of the safest investment options, fixed deposits is an instrument to grow a lump sum at a fixed interest rate over a fixed time. Both banks and Non-Banking Financial Companies (NBFCs) offer fixed deposits spread across various tenors. According to financial advisers, fixed deposits are the most favoured option for those investors who are averse to risks. There is a little to no risk of loss of principle in bank fixed deposit investment. Senior citizens, those who are above 60 years old, often opt for a fixed deposit, considering its assured return feature. It must be noted that senior citizens are eligible for additional rates, usually 0.25 per cent to 0.65 per cent more than existing rate on fixed deposits.
Features and Benefits of Fixed Deposits or Bank FDs:
a) The interest rates of fixed deposits are unaffected by the market fluctuations. So it is safer than other investment vehicles available in the market.
b) There is no limit on the maximum deposit or number of fixed deposits one can open. Hence, investors can park their money in multiple fixed deposits at the same time with different interest rates and earn more.
c) The tenure of fixed deposits ranges from 7 days to 10 years. The flexible tenure has also made fixed deposits one of the attractive investment options among investors.
d) Investors will get a guaranteed return on maturity on fixed deposits. There is an option to choose how the interest will be credited as per your requirements on a monthly, quarterly, or annual basis.
d) Apart from assured returns, bank FDs are loaded with multiple features such as insurance, tax benefits and overdraft feature. Fixed deposits are insured for up to Rs 1 lakh by the Reserve Bank of India.
Those who invest in bank FDs are eligible for overdraft facility against the fixed deposits. You can raise fund through overdraft facility during a financial emergency.
e) Tax Benefits on Fixed Deposits:
If you invest in a tax-saving fixed deposit, it will fetch you tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax, Act. The interest earned from fixed deposit will attract Tax Deducted at Source (TDS), according to the income tax bracket. However, investor can submit Form 15G and senior citizens can submit Form 15H to avoid this deduction. Moreover, the senior citizens can also claim a deduction of up to Rs 50,000 on interest earned under Section 80TTB.
Who can Open a Fixed Deposit?
The following entities are eligible to open fixed deposits in India. 1) Indian residents, 2) Non Resident Indian (NRI), 3) Minors or those who are below 18 years old, 4) Senior citizens, 5) Companies, 6) Partnership firms, 6) Joint investors, 7) Clubs or societies 8) Sole proprietorship.
Key Things to Consider Before Opening Fixed Deposits
When you are parking your hard-earned money for a good return in a scheme, it is important to know who is offering you better return. So, a quick study and comparison of the various fixed deposit rates by the different banks, is a must before opening a fixed deposit account.
There are several fixed deposits available in the market — tax-saving fixed deposits, cumulative fixed deposits, non-cumulative fixed deposits, flexi fixed deposits. Do your own research about the pros and cons of each of them and choose what is best for you.
If you are going for relatively lesser known NBFCs for some extra cash at the end of the maturity, you should also examine the fixed deposit’s safety ratings too. Lastly, choose a bank which offers a hassle-free customer service.
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