Fixed Deposits Explained
Updated on Dec. 15, 2022, 1 p.m.
The institution undertaking the process of accepting and protecting your hard-earned money is known as banks and we will analyse the safest investment options. Nothing comes to our mind other than the Fixed Deposits. People are approaching various financial institutions to open their fixed deposits and make a difference in their lives.
What is Fixed Deposit?
The safest investment option where in the people can earn lot of money with relatively higher rate of interest compared to the regular savings account is known as the Fixed Deposits. Here the interest is accumulated on the amount deposited over a period of time.
The fixed deposits come with a certain rate of interest and it is imposed by the Public and Private Banks and the Small Finance Banks. The Senior Citizens are offered the highest rate of interest and during the emergency situations, you can get your Fixed Deposits and the returns associated with it.
It works on the basic concept of Higher the Duration, Higher the Returns. You can go ahead and choose the fixed deposits ranging from 7 to 10 years. The best part is even if there are natural calamities like the flash floods, earthquakes, landslides or the man-made calamities, the rate of interest will not fluctuate, thus making it the secured deposits in banking segments.
You will earn the rate of interest on regular basis or during the maturity depending upon your activities. Furthermore, you will not be allowed to withdraw the money before the maturity date. In case you try to withdraw the money before the date of maturity, then you will have to pay the penalty.
Features of Fixed Deposits
There are various features of the fixed deposits and they are given below as follows:
- Returns are Assured: The returns that you get using the Fixed Deposits are very guaranteed in nature. The terms and conditions signed while opening the Fixed Deposits will come into the picture. However, in market investments the returns will be influenced by fluctuations in market. The customer will get the same interest that is promised, even if the rate of interest comes down.
- Awesome Returns on Investments: The amount that you have deposited towards the fixed deposits will get influenced by the maturity period. Furthermore, the returns you get on your investments will be influenced by whether are you receiving interest occasionally or you are reinvesting the interest also known as the Cumulative Fixed Deposits.
- Loan against the Fixed Deposits: You can go ahead and take the loans against the Fixed Deposits, knowing that you need the money. Process of borrowing money from savings or current account, even if the account balance is zero. The interest is imposed on the amount of overdraft taken and not on the complete amounts and it has to be paid within a definite duration as needed by the lender. The rate of interest is 1 to 2% above the current fixed deposits.
- Flexible Tenure and Renewal: The fixed deposit will be lasting for a period from 2 years to 10 years and you can select them as per your strengths and weakness. This type of fixed deposit is tricky as the rate of interest is very flexible in nature and during maturity period it may come down or go up as well.
- Tax Deductions: The interest that you earn on your principal amount is subjected to a unique tax deduction under the Income Tax Act of 1961. Furthermore, you can also calculate the Fixed Deposit interest income in other incomes section while doing the filing of the returns.
- Auto Renewal of Policy: Some of the public or the private banks, believe that the fixed deposit must be renewed or also withdrawn at the end of the tenure. The bank will go and auto renew your fixed deposits and the entire amount is forwarded for the next set of years.
- Overdraft Services: Our bank will offer an amazing overdraft service, against your fixed deposits. During this scenario, you can borrow up till 90% of the total fixed deposit amounts. This will not hit your savings in any manner.
- Pan India Banking: It is believed that banks will allow their customers, to open the fixed deposit accounts and take banking facilities in any part of India and this will ease the life of the customers.
- Encourages the Savings Habits: It is believed that opening a FD will encourage the savings habits of the customer and you can use that money for emergency purposes. You can also take loans against the Fixed Deposits and or withdraw the Fixed Deposits in a systematic manner as well.
Types of Fixed Deposits
There are various types of fixed deposits given below as follows:
- Company Deposits: Most of the banks in India, are offering the fixed deposits to its customers with the highest interest rates. This demands investment to be done in organisations with amazing credit ratings from companies like CRISIL and ICRA.
- Bank Fixed Deposits: These kinds of deposits are usually given by the banks to its customers having a savings account. Most of the banks offer amazing features like deposit insurance of INR 5 Lakhs on the Fixed Deposits. The rate of interest is very lower than those offered by the non-banking finance companies.
- Cumulative Fixed Deposits: The Cumulative Fixed Deposits are those kind of the fixed deposits as the earned interest is available to the individual on the maturity. This is ideal for the investors not having a regular source of income, but will need more returns on investments. Once can invest in the Cumulative Fixed Deposits ranging from 12 months to 60 months and beyond.
- Tax Savings Fixed Deposits: Most of the Fixed Deposits have a period of 6 years and the major benefits is that you can get the tax deduction of INR 2 Lakhs in a given period under the Section 80C of the Income tax Act. This kind of deposits comes with a lock in period, and you cannot override the duration.
- Senior Citizen Fixed Deposits: This class of people has seen the prime of their lives and they need protection from changing economic scenarios. It offers the highest rate of interest compared to other Fixed Deposits and also helps in meeting your financial requirements.
- NRI Fixed Deposits: As the name suggests, the NRI FD offers the highest rate of interest compared to the traditional bank accounts. People of Indian Origin and the Non-Resident Indians are qualified to open this account and the tenure ranges from 12 months to 70 months.
- Non-Cumulative Fixed Deposits: It is a unique type of the Fixed Deposits, where the financial institution will give you, the interest earned on the principal amount at regular intervals. The duration will be ranging from 12 months to 70 months and if the interest payment frequency is higher, then maturity amount reduces. You will receive the regular interest pay outs to meet regular expenses. This is apt for pensioners and retirees looking for extra income.
- Regular Fixed Deposits: This is the basic form of the fixed deposit where in you invest your money for a fixed period like 5 years and you protect the amount and get the highest rate of interest that is accrued to your accounts. It is also known as the Standard Fixed Deposits.
Ways to Select the Best Fixed Deposits
The factors used to select the Best Fixed Deposits are as follows:
- You must compare the Return on Investment using the Fixed Deposits Calculator.
- Choose a bank offering hassle free process of creating a fixed deposit account.
- Check the credibility of the lending bank by checking if it is certified by ICRA or CRISIL.
- Always check the cumulative options, as they offer the highest returns.
- Always choose the longer duration to get the highest returns.
- You must make sue that the best fixed deposits give you an amazing tax benefit under Section 80TTB.
Who can Open the Fixed Deposits?
The below mentioned entities are eligible to open the Fixed Deposits and they are like:
- Indian Citizens
- Non-Resident Indians
- Senior Citizens
- Partnership Firms.
- Joint Investors.
- Clubs and Societies.
- Sole Ownerships.
To be honest, the fixed deposits is the most sought-after investment option among 90% of Indians as it is not subject to market fluctuations and returns are assured.
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