Bank deposits are one of the most preferred investment options in India as they are known for being safe and not risky, especially in comparison with other investment option like the
stock market and mutual funds.
A fixed deposit (FD) is a financial instrument provided by banks which gives investors a higher rate of interest than a regular savings account, until the given maturity date.
It may or may not require the opening of a separate account and are they are considered to be very safe investments with term deposits being used to denote a larger class of investments with varying levels of liquidity.
In a fixed deposit investment, the money cannot be withdrawn from the FD as compared to a demand deposit or recurring deposit before maturity.
Banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates.
The banks may offer lesser interest rates under uncertain economic conditions that varies in percentage terms with the time period that can vary from the short term such as 7 days to a long term of 10 years.
These investments are safer than Post Office Schemes as they are covered by the law and that guarantees a specific amount per depositor per bank with income tax and wealth tax benefits.
Those from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India, RBI, the banking regulator in India.
It is important to note that company FD is not reliable as compared to a bank FD because if the company goes bankrupt you may lose your money.
You need to check the credit rating of a company before investing and be careful of companies which offer interest rates that are significantly higher than the average to attract your money.
An FD gives you the option of receiving regular income through the interest payments that are made every month or quarter and this is especially useful for the retired.
It must be noted that a fixed deposit will not give you the same returns that you may get in the stock markets but the risks of investing in stocks are higher.
A fixed deposit is not helpful against inflation and if inflation rises steeply during the maturity of the FD your inflation adjusted return will fall.
There are two types of term deposits - fixed deposits and recurring deposits.
A fixed deposit is where you invest all your money at one-go whereas a recurring deposit is when you invest your money in installments.
When you opt for a term deposit, you are placing your funds in a particular bank deposit for a fixed period of time and for this banks offer you to pay a fixed interest and makes it a safe alternative because the interest payment acts as your profit from the investment.
Senior citizens usually get a higher interest and while fixed deposits offer higher interest rates, recurring deposits usually offer a lower interest rate than fixed deposits.
You can decide when you want to receive the interest due once the deposit matures, you can opt for regular interest payments on quarterly, half-yearly or annual periods of time and some banks also offer you a choice to reinvest your interest payments.
Term deposits offer a wide variety of interest rates that changes with the duration of the deposit with the greater the duration, larger is the interest rate offered.
This makes investors deposit money for as longer a time as the bank pays interests regularly and over a period of time, this money can either be reinvested in the same deposit or saved in your bank account that would earn you additional interests, thus increasing your total return.
The money you deposit with the bank acts as a source of cheap borrowing for the bank but the money in the savings accounts could be withdrawn any moment by depositors.
This increases risks for the banks and that is why banks actively try to attract deposits to invest in term deposits because the amount in deposits are unlikely to be touched for a longer period of time.
The only rule of a term deposit is that once you deposit, you cannot withdraw this money and if you want to reclaim your deposit amount, you will be fined a particular sum or your total interest payment may be reduced.
Banks may only allow you to withdraw the money after a certain minimum period.
Breaking a fixed deposit means withdrawing the money before the maturity expires and this may be necessary if you urgently require the funds or if there are better investment opportunities elsewhere.
If you are in need of liquid cash, and you have withdrawn all of your funds in your bank accounts, you can borrow on the basis of your fixed deposits and this is called the overdraft facility.
There is a limit to how much you can borrow under this service and it may not be interest-free.
Interest payments on fixed deposits are taxable and this depends on your overall income tax bracket to which you belong.
If you fall in the 20% income tax bracket, your interest payments would be taxed at the same rate and this is why fixed deposits are usually not preferred by those in the 30% bracket.
Also, if your total interest payment in a year exceeds Rs 10,000, then the bank cuts 10% as tax deducted at source (TDS).
However, if you submit the Form 15G/H to the bank stating you have no taxable income, then the bank will not deduct tax.
You can also split your term deposits across banks to ensure the interest is not more than the amount of INR 10,000 in a single bank.
Banks offer fixed deposits for tax-saving purposes and the amount you save in such deposits can reduce your total taxable income and thus help you save taxes.
Tax-saving deposits have a minimum tenure of 5 years and a maximum of 10 years and the government has also kept the maximum amount you can invest in such a deposit for tax purposes to Rs 1 lakh per year but the interest you earn will be taxable.
A fixed deposit (FD) is a financial instrument provided by banks which gives investors a higher rate of interest than a regular savings account, until the given maturity date.
It may or may not require the opening of a separate account and are they are considered to be very safe investments with term deposits being used to denote a larger class of investments with varying levels of liquidity.
In a fixed deposit investment, the money cannot be withdrawn from the FD as compared to a demand deposit or recurring deposit before maturity.
Banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates.
The banks may offer lesser interest rates under uncertain economic conditions that varies in percentage terms with the time period that can vary from the short term such as 7 days to a long term of 10 years.
These investments are safer than Post Office Schemes as they are covered by the law and that guarantees a specific amount per depositor per bank with income tax and wealth tax benefits.
Those from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India, RBI, the banking regulator in India.
It is important to note that company FD is not reliable as compared to a bank FD because if the company goes bankrupt you may lose your money.
You need to check the credit rating of a company before investing and be careful of companies which offer interest rates that are significantly higher than the average to attract your money.
An FD gives you the option of receiving regular income through the interest payments that are made every month or quarter and this is especially useful for the retired.
It must be noted that a fixed deposit will not give you the same returns that you may get in the stock markets but the risks of investing in stocks are higher.
A fixed deposit is not helpful against inflation and if inflation rises steeply during the maturity of the FD your inflation adjusted return will fall.
There are two types of term deposits - fixed deposits and recurring deposits.
A fixed deposit is where you invest all your money at one-go whereas a recurring deposit is when you invest your money in installments.
When you opt for a term deposit, you are placing your funds in a particular bank deposit for a fixed period of time and for this banks offer you to pay a fixed interest and makes it a safe alternative because the interest payment acts as your profit from the investment.
Senior citizens usually get a higher interest and while fixed deposits offer higher interest rates, recurring deposits usually offer a lower interest rate than fixed deposits.
You can decide when you want to receive the interest due once the deposit matures, you can opt for regular interest payments on quarterly, half-yearly or annual periods of time and some banks also offer you a choice to reinvest your interest payments.
Term deposits offer a wide variety of interest rates that changes with the duration of the deposit with the greater the duration, larger is the interest rate offered.
This makes investors deposit money for as longer a time as the bank pays interests regularly and over a period of time, this money can either be reinvested in the same deposit or saved in your bank account that would earn you additional interests, thus increasing your total return.
The money you deposit with the bank acts as a source of cheap borrowing for the bank but the money in the savings accounts could be withdrawn any moment by depositors.
This increases risks for the banks and that is why banks actively try to attract deposits to invest in term deposits because the amount in deposits are unlikely to be touched for a longer period of time.
The only rule of a term deposit is that once you deposit, you cannot withdraw this money and if you want to reclaim your deposit amount, you will be fined a particular sum or your total interest payment may be reduced.
Banks may only allow you to withdraw the money after a certain minimum period.
Breaking a fixed deposit means withdrawing the money before the maturity expires and this may be necessary if you urgently require the funds or if there are better investment opportunities elsewhere.
If you are in need of liquid cash, and you have withdrawn all of your funds in your bank accounts, you can borrow on the basis of your fixed deposits and this is called the overdraft facility.
There is a limit to how much you can borrow under this service and it may not be interest-free.
Interest payments on fixed deposits are taxable and this depends on your overall income tax bracket to which you belong.
If you fall in the 20% income tax bracket, your interest payments would be taxed at the same rate and this is why fixed deposits are usually not preferred by those in the 30% bracket.
Also, if your total interest payment in a year exceeds Rs 10,000, then the bank cuts 10% as tax deducted at source (TDS).
However, if you submit the Form 15G/H to the bank stating you have no taxable income, then the bank will not deduct tax.
You can also split your term deposits across banks to ensure the interest is not more than the amount of INR 10,000 in a single bank.
Banks offer fixed deposits for tax-saving purposes and the amount you save in such deposits can reduce your total taxable income and thus help you save taxes.
Tax-saving deposits have a minimum tenure of 5 years and a maximum of 10 years and the government has also kept the maximum amount you can invest in such a deposit for tax purposes to Rs 1 lakh per year but the interest you earn will be taxable.
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