1. Fixed Deposits
Fixed Deposits are long-term investment tools that help investors save some money from their income for rainy days. As one of the most traditional and safest means to invest, many prefer it for wealth creation and saving taxes. Yes, it is eligible for tax deduction under 80C. They also offer high-interest rates as compared to savings accounts.
You can open an FD account with almost all the banks in India. The interest rates on FD schemes can go up to 9% and this usually depends on the market trends. However, once you have added money to your FD account, the interest will remain the same throughout the tenure. Therefore, it is perfect to grow financial assets without getting burned by market volatility and related risks. As the name suggests, one cannot withdraw a fixed deposit before maturity. But in case of emergencies, you can liquidate it for a lower interest rate.
2. Who should Invest in Fixed Deposits?
You can open an FD account with any bank in India if you are a Resident Individual, an HUFs, an NRIs, a Firms, or a Charitable Trust.
Fixed deposits is a good choice for people who have some extra lump sum amount, which they don’t need to use at the time. It ensures capital protection as well as a uniform flow of income. However, the returns are not inflation-beating. If you are somewhat risk-averse and do not want equity exposure, FD is for you. Debt mutual funds also serve this purpose and give higher returns. Though they are more tax-efficient than FDs, returns are subject to market risks.
3. Compare Interest Rates from different Banks
The interest you earn from your FD depends on the amount and tenure chosen. An account with a higher lump sum will fetch more interest income and vice versa. Even though the latest FD rates (as on April 2018) is listed below, you can use the FD calculator to calculate the interest for specific terms.
|BANK||Normal Citizens||Senior Citizens|
|State Bank of India||5.75% – 6.85%||6.25% – 7.35%|
|HDFC Bank||3.50% – 7.40%||4.00% – 7.90%|
|ICICI Bank||4.00% – 7.50%||4.50% – 8.00%|
|Axis Bank||3.50% – 7.60%||3.50% – 8.25%|
|Kotak Mahindra Bank||3.50% – 7.30%||4.00% – 7.80%|
|IDFC Bank||4.00% – 8.25%||4.50% – 8.75%|
|Bank of Baroda||4.50% – 6.85%||5.00% – 7.35%|
|IDBI Bank||5.75% – 7.05%||5.75% – 7.55%|
|Indian Bank||4.50% – 6.75%||5.00% – 7.25%|
|PNB Bank||5.70% – 6.75%||6.20% – 7.25%|
|Allahabad Bank||5.00% – 6.75%||–|
|Andhra Bank||4.00% – 6.80%||4.50% – 7.30%|
|Bank of India||5.25% – 6.70%||5.25% – 7.20%|
|Canara Bank||5.75% – 7.00%||6.25% – 7.50%|
|Central Bank||4.75% – 6.60%||5.25% – 7.00%|
|Union Bank of India||5.00% – 6.85%||5.50% – 7.35%|
|Corporation Bank||4.50% – 6.80%||5.00% – 7.30%|
|Syndicate Bank||4.75% – 6.80%||5.25% – 7.30%|
|Citibank||3.00% – 7.50%||3.50% – 8.00%|
|HSBC Bank||3.15% – 7.00%||3.65% – 7.50%|
4. Features of Fixed Deposits
a. Long-term investment: The main goal of an FD is to keep your money safe for a longer period while earning you steady interest.
b. One-time deposit: You need deposit the money only once (lumpsum payment). If you have surplus money and you don’t need it in the immediate future, opening an FD is the best way to keep them safe.
c. Fixed deposit receipt: You will get an FD receipt after depositing the money. You can also request an electronic copy. Keep this safe, since you must submit this to withdraw money or renew the account postmaturity.
d. Interest payout: FD interest is paid out monthly or quarterly as per the depositor’s request. For instance, you can request that the bank credit the interest to a specific saving account in your name.
e. Tax-efficiency: You can opt for tax-saving FD and invest up to Rs. 1.5 lakhs to save on income taxes. The income is taxable and the tax is deducted at source as per the Income Tax Act, 1961.
5. Advantages & Disadvantages of FD
i. Low-risk: An FD account is a safe place to park your money, where market risks cannot touch the investment or the interest. RBI offers insurance for deposits up to Rs. 1 lakh. So, your money is safe by all means.
ii. Loan against FD: During emergencies, people rely on investments they can liquidate easily, and FD is one of them. However, you can avail secured loans against FDs (up to 90% of the amount) at lower interest. For instance, most banks keep the interest for loans against FDs, just 2% more than that their current FD rate.
iii. Steady income: You get the same interest payout throughout your tenure, regardless of the market fluctuations. The interest sum gets credited annually, monthly or quarterly as per your requirements.
iv. More for senior citizens: Almost every bank offers a higher interest rate to senior citizens. This appeals to retirees greatly. Example, SBI offers 6-6.75% returns to senior citizens compared to the 5.25-6.25% it offers regular customers.
v. Tax perks: As mentioned above, you can invest in tax-saving fixed deposit for five years to avail 80C tax deduction.
vi. Option to reinvest: You can request the bank to transfer the amount to a new FD account, where it will reap more dividends.
i. Returns are not inflation-beating: Everyone knows that FD is not the best choice for gaining maximum returns. Example, there are other investment avenues like Equity Linked Savings Scheme (ELSS) that can literally double your money in the same period while saving your income tax.
ii. Less liquidity: If you withdraw the FD before maturity, you will lose much of its benefits. Not only will you earn only part of the promised interest, but the bank will also levy a liquidation fee. Even partial withdrawal has the same consequences.
iii. Less tax benefits: Even though it comes under 80C investments, the returns you earn are taxable. A 10% TDS is deducted on the FD returns if the total interest exceeds Rs. 10,000 in a financial year. For joint accounts, only the primary account holders can avail tax benefits.
6. How to open an FD & the documents required
Starting an FD is quite easy and instant nowadays. If your internet banking account is active, you can open it by filling the online form from your own account. There is no need for separate Know Your Customer (KYC) as the bank already has it covered.
You may also go to a bank and collect an application form. Submit the duly filled form with an ID proof, residential proof and passport size photos – see the table. Once you deposit the amount, they will give you an FD receipt. You will need it to redeem or reinvest once it matures.
|Identity Proof||Address Proof|
|PAN card||Telephone bill|
|Voter ID card||Electricity bill|
|Driving license||Bank Statement with Cheque|
|Government ID card||Certificate/ ID card issued by Post office|
|Photo ration card|
|Senior citizen ID card|
7. Tax-saving FDs Vs ELSS
Sometimes it can be a good idea to look beyond FDs and consider mutual funds. Many banks have slashed the interest rates considerably and tax-saving funds have delivered 15-18% returns consistently in the recent years. For example, mutual funds offer you SIP (Systematic Investment Plan) option, while FD allows only lumpsum investment. Of course, this may not continue, but you can still expect a standard 12%, which is more than the 6-8% FDs can deliver.
In short, you must choose any investment scheme based on your financial goal. Hence, if the aforementioned features and benefits of fixed deposits match your goals, then FD is a safe choice. For those who are willing to take more risks for more returns, there are hand-picked mutual funds from the top fund houses in the country.