What You Should Know about Fixed Deposit Tenures and Types?
If you’re interested in saving and investments, you might have heard of a Fixed Deposit scheme. It’s one of the most reliable investment instruments and comes with high returns. Fixed Deposits ensure positive cash flow, which means you get your returns irrespective of the ups and downs in the financial market.
However, before investing in a Fixed Deposit (FD), it’s important to know which one to choose and what tenure to go for. Here’s a detailed analysis of FD tenures and types.
Importance of Tenure
The tenure you choose affects the FD Interest Rates . The longer the tenure, higher the rate of interest. If the repo rate decreases, as proposed by the RBI, you might end up getting a higher rate of interest on a short-term Fixed Deposit investment.
Short-term Fixed Deposits are ideal when you don’t have enough money to invest or would like your investment to mature within a few weeks or months. On the other hand, long term FD Investments are ideal for people who want to protect their savings from fluctuating rates of interest.
Some financial institutions will also allow you to opt for an open tenure FD so that you can break it prematurely without losing any interest charges. With an open tenure, you might get the flexibility of withdrawing cash at any instance, but end up earning low returns. So, if you’re looking at a long-term investment and high returns, it’s best to opt for a full-tenure FD that comes with a high rate of interest. You can approach a lender who is flexible with tenures so that you can distribute your investment into full and open tenure FDs. Bajaj Finserv, one of the leading finance and banking institutions in India, lets you opt for a flexible tenure.
Types of Fixed Deposits
Regular Fixed Deposit
Regular Fixed Deposit is offered for a fixed tenure of 6 to 60 months and you can withdraw your money when the FD matures. Usually, these FDs come with a rate of interest ranging from 5.25 to 12% and the interest is compounded quarterly. You are not supposed to break the FD before maturity, but if you are absolutely in need of money you can withdraw the FD prematurely. But, if you want to gain high returns, it’s advisable you claim the money at the end of the Fixed Deposit tenure.
According to the Income Tax Act 1961, the interest earned from a regular FD is taxable. But if you are wise while choosing the financial institution, you might save some taxes. At Bajaj Finserv, no tax is deducted at source for interest charges amounting to Rs.5,000 p.a.
Tax Saver Fixed Deposit
A few banks and NBFCs offer tax saver Fixed Deposit schemes. According to Section 80C of the Income Tax Act, 1961, you’re liable to get tax exemption for the interest charges earned from such FDs. Note that you can claim a tax deduction of maximum Rs.1.5 lakh by investing in a tax saver Fixed Deposit.
A tax saver Fixed Deposit comes with a fixed maturity period of 5 years, which means no premature withdrawal. This Fixed Deposit variant can be opened both individually and jointly. In the case of a joint FD, only the first investor can claim tax deductions.
Now that you have learned about the importance of tenure while investing in an FD, you can choose one that suits your requirements the best. Whether you go for a regular or a tax saver Fixed Deposit, make sure that it benefits you in the long run.