Fixed Deposit is a financial tool that has enjoyed iron-clad trust of the general population since decades, when it comes to savings. Since it is a bank-based investment product, closely monitored by RBI, investors are assured of its safe and low-risk nature. The money deposited is safe and is easily redeemable with interest once it reaches maturity.
You can open a fixed deposit account, starting from 1 month. However, if you see FD as a tax-saving as well as a capital protection scheme, you need to lock your money at least for 5 years. Then you will be able to claim 80-C tax exemption. Though it delivers a higher interest compared to savings account, the income is taxed.
Fixed deposits are deemed as one of the safest savings option that help you increase your finances without falling victim to market highs and lows.
Almost every bank offers fixed deposit accounts, and the interest given depends on the term you choose among other factors. You can earn as much as 9% annual rate on your FD.
Features & Benefits of Fixed Deposits
- FD has a higher interest-earning potential than savings account
- It inculcates savings habits in you
- FD allows only a one-time lumpsum deposit
- A fixed deposit receipt given to you at the time of account opening should be submitted to withdraw when the FD matures
- You can renew an FD post maturity
- Interest can be credited once a month or once in 3 months to your savings account as per your requirement.
- Reinvestment scheme delivers you compounded interest every quarter
- TDS from the interest on FDs is applied
- You get guaranteed and steady returns
- There is flexibility in the amount and tenure for investors
- You can open an FD account online in minutes with minimal paperwork
- More than one FD account per person across banks are allowed
- You may invest up to Rs. 1.5 lakhs per year in FD and claim tax deduction
- It is easy to get loan on the FD amount for lesser interest
- FDs offer high liquidity
Tax-saving FD FAQs
Who should invest in tax-saving FD?
Anyone looking for a shorter lock-in period and seeking a guaranteed return tax-saving option should invest in these fixed deposits.
How can I open a tax-saving FD?
Investing in a tax-saving fixed deposit is very easy. You can open an account online or at a bank branch. Different banks offer different interest rates on tax-saving FDs, so it is best to compare rates before you make an investment.
Is tax-saving FD risky?
Tax saving fixed deposits are riskfree. The amount you invest in it is completely protected and the returns are also guaranteed.
What is the tax-saving FD interest rate?
Tax-saving fixed deposits have a fixed interest rate that remains the same throughout the 5 year tenure. The interest rates for Indian citizens, HUFs and NRIs vary from bank to bank and begin from around 8 per cent. Senior citizens and bank staff members are offered higher interest rates. The interest is taxable, deducted at source, and added to your income.
What is the tax-saving FD investment limit?
The minimum investment that can be made in a tax-saving fixed deposit is Rs 100 while the maximum is Rs 1.5 lakh in a year.
What are the tax benefits of these FDs?
The amount invested in a tax-saving fixed deposit is eligible for tax exemption under Section 80C. This amount can be a maximum of Rs 1.5 lakh a year. In case of joint holders, the tax benefit is available to only the first holder.
What is the tenure of a tax-saving FD?
Tax-saving fixed deposits have a lock-in period of 5 years. No premature withdrawals, loans or overdraft facilities are available against tax-saving FDs.
Who can invest in tax-saving FD?
Indian citizens, senior citizens, HUFs and NRIs can invest in tax-saving fixed deposits.
What happens upon maturity of tax-saving FD?
When the fixed deposit term ends, the money comes back to your bank account.
Anything else I should know?
Tax-saving fixed deposits offer a nomination facility. A tax-saving FD can be transferred from one bank branch to another.