What is a Fixed Deposit and How Can It Help Your Life?
A Fixed Deposit (FD) is an investment instrument through which an individual can deposit a certain amount for a specific period of time. The bank or financial company would pay interest on the amount deposited.
The Fixed Deposit definition given above is appropriate for all kinds of FDs offered by banks and other institutions. The FD has traditionally been a favoured instrument of savings in India. However, in recent years, other options like investing in the stock market and real estate have become more popular among younger generations since they offer the potential for higher capital appreciation. However, Fixed Deposit still remains an attractive method of saving funds. Questions you might have about opening a Fixed Deposit
A Few Things to Know About Fixed Deposits:
- Fixed deposits are safe because they are regulated by guidelines set by the Reserve Bank of India.
- An FD earns a higher rate of interest than an ordinary savings account.
- Fixed deposit rates of interest are generally defined at the time of opening the account. Look at the Fixed Deposit interest rates offered by Bajaj Finserv to get an idea of how much a good FD can earn you.
- You can deposit an amount into the FD only once—when you open the account.
- Interest is paid out on a quarterly basis, but the depositor can choose to be paid monthly. This interest, by default, is credited to a linked savings account.
- When you open a Fixed Deposit, you are given an FD Receipt which you have to keep safe and produce at the time of maturity to redeem your deposit amount.
- Fixed Deposits have to remain in the account for the tenure period to provide maximum benefit.
- If you redeem your FD before the full term, you might be charged a penalty fee.
- Senior citizens generally earn a higher rate of interest on FDs.
- The interest on an FD is considered income. If the interest amount per annum exceeds a defined limit, it is taxable.
- TDS can be activated on the interest amounts if applicable. The TDS is 10% of the interest amount.
- The full tax on interest that the individual has to pay is defined by the tax slab they are in. So, if you are in the 30% tax slab, besides the 10% TDS on the interest, you will have to pay an additional 20% during your final tax assessment. You can also use an FD calculator to help save tax deducted at source by splitting your FDs over different financial institutions.
- You can earn more on a Fixed Deposit by choosing to reinvest the interest paid out. This results in compound interest as the total deposit amount increases with each additional deposit of the interest amount.
Eligibility Documents Required for Fixed Deposits Account:
Any individual, business, or institution can open a Fixed Deposit. To open a Fixed Deposit, you have to furnish proof of identity, and proof of address. The document you present to verify the information might include PAN Card, Passport, Voter ID, Driving License, and/or Utility Bills.
There are plenty of FD calculator available in the market which help you determine the returns you get. Basically, a typical FD calculator requires 4 different parameters to give you a result. They are amount, rate of interest, FD period, and compounding frequency. All you’d have to do is type in the details you have to get all the details you will ever need.
Types of Fixed Deposits:
In India, there are different types of Fixed Deposit options, allowing you to choose the one that fits your needs best.
This FD that has a set interest rate, and requires you to deposit the amount for a definite tenure. This can range from 7 days to 10 years.
This kind of FD is deposited for a specific number of days. The bank or NBFC offers a defined tenure like 333 days or 555 days. This earns a slightly higher rate of interest than the Regular FD.
Tax Saving FD:
This kind of Fixed Deposit lets you use the FD as a tax-saving instrument. Deposit amounts of up to INR 1,50,000 are exempt from income tax, but there is a lock-in period of five years on the deposit.
This allows for a flexible rate of interest, which is adjusted based on the market rate.
Also Read: Fixed Deposit Tenures and Types
A Fixed Deposit is a safe and convenient way to invest your money and earn interest on it. Apply for a Fixed Deposit with Bajaj Finserv, as they offer attractive interest rates and other features.