What is a Fixed deposit?
Fixed Deposit or FD is an investment option given by banks and non-banking financial companies (NBFCs). It is one of the easiest ways to earn interest on your money. You can deposit a large amount with the bank or NBFC and earn a regular income in the form of interest, which is higher than savings account interests and carry no market-related risks.
For building your savings for short-term goals, a savings account can be the most preferred option. When you have surplus cash, depositing this in your savings account will fetch you interest. This interest is taxable.
Features of Fixed Deposits
Types of Fixed Deposits
- You get your principal and interest on the maturity date. The interest payment stays in the deposit, and interest is paid on it as well. This is called compounding, and the frequency at which compounding is done varies from bank to bank.
- Cumulative deposits are suitable when you don’t depend on the periodic interest income for expenses. All FD interest is taxable.
- Non-cumulative FDs are suitable if you are looking for a regular income, such as retired people. They can invest a lump sum in a non-cumulative FD and earn regular returns with options of receiving interest monthly, quarterly, half-yearly or annually. All FD interest is taxable.
- You can combine low risk and tax savings with the tax-saving FD, which has a five-year lock-in and cannot be pre-closed.
- The amount you place in these deposits is eligible for tax deduction under Section 80C of the Income-tax Act, 1961.
- Though there is no option to pre-close the deposit, you can choose a nominee at the time of application, and the nominee can claim the principal and accrued interest after your death.
Why invest in Fixed Deposits?
Limitations of Fixed Deposits
Premature withdrawal fine – In case a depositor wants to claim the amount deposited before the end of the FD tenure, then he ought to pay a premature withdrawal fine amount to complete the process.
Lock-in period – Be it any sum that you have deposited, the amount is locked in for a specific period of time. The amount can’t be claimed during this time period in case of emergencies.
Tax benefits – Until and Unless a depositor chooses tax-saving fixed deposits, the individual cannot claim for tax exemption.
Fixed interest rates – Interest rates do not rise or fall with time. The income is fixed, and the expectation for higher returns is not practical.
Taxability on fixed deposits
- The interest claimed as a return is taxable.
- The tax deducted can be from 0% to 30% depending on the income tax bracket they fall in. When the interest amount is more than Rs. 10000 every year, then the TDS deducted is 7.5%.
- The deduction is applicable only if the PAN details are given. TDS deduction is 20% if the PAN number is not attached.
- The TDS deduction can be claimed back if the total income is less than the 10% income slab.
- To avoid deductions, the depositor has to submit the Form 15G to the bank. If the depositor is a senior citizen, Form 15H has to be submitted.
- When the investor is in a higher tax bracket, 20% to 30%, there is an extra tax amount to be paid.
Things to know before selecting a Fixed Deposit
- Every bank has a different minimum and maximum deposit limit, which you must check as well
- Type of interest (fixed or floating rate)
- Withdrawal options
- Mode of payout.
- Most banks offer fixed deposits for periods between one year to ten years. Choose the tenure based on your requirement
Documents required to open a fixed deposit
- Aadhar Card
- Voter ID card
- Driving license
- PAN Card
- Bank statement with cancelled cheque
- EB Bill
- Telephone bills
How to open a fixed deposit online?
Fincover allows you compare the different fixed deposit options in the market. To open a fixed deposit online in Fincover follow these steps,
- Login to Fincover and click on “Banking Products” and then “Fixed Deposits”
- Fill in the fixed deposit form. The details required include investor name, date of birth, city, email and phone number
- After submitting the details, you will view the best FD plans available in the market. Compare and choose the plan that suits your requirement
- You will be redirected to the bank or NBFC’s website to complete the procedure