or Fixed Deposits are long-term
investment tool which helps investors save money for the long term. Investors can choose a fixed tenure for
which the deposit will be kept with the bank. In general, FD investments are better for those looking for
long-term wealth creation as they offer high interest rates as compared to savings accounts.
How is FD interest calculated?
Interest on FD is compounded quarterly, in most banks. The formula for this is:
A = P * (1+ r/n) ^ n*t , where
I = A – P
A = Maturity value
P = Principal amount
r = rate of interest
t = Number of years
n = Compounded interest frequency
I = Interest earned amount
Benefits of FD
- FD can be used as collateral for taking loans. You can take up to 80-90% loans on your FD amount
- The depositor can choose to transfer the amount at the time of maturity for a further Fixed Deposit.
- The money can be deposited only once. Once deposited, withdrawal of money from the account will accrue a
- FD schemes are good investment tools for those who have surplus funds and want to earn money from it.
Tax Benefits on FD
Similar to other personal tax-saving and investment instruments, Fixed Deposits schemes also attract taxes. A TDS
of 10% is deducted on the returns accrued from an FD
if the total interest exceeds Rs. 10,000 in a single financial year.
Let’s compare this to the SIP scheme and you can see that SIPs are more beneficial for the long term. Since
long-term gains from equity are tax-free, any SIP
invests in ELSS
(Equity Linked Mutual Funds) is also
tax-free after one year.