The easiest method to increase your wealth is to invest sensibly, and Fixed Deposits (FDs) are a great option for individuals just starting in the world of finance. Although it’s favorable to have fixed deposits in your financial portfolio, it’s vital to understand how they operate to get the most out of this risk-free form of investing.
Depending on the investor’s preference, a fixed deposit is a secure and safe investment instrument that enables you to invest a lump sum and convert it into guaranteed returns over a predetermined period. Despite any fluctuations during the tenor, a fixed deposit assures the principal deposited as well as interest at the documented rate.
For many generations in India, fixed deposits have been the go-to investing option. They are the ideal option for you if you don’t like taking on a lot of risks but still want a good rate of return. They are also excellent for long-term investment objectives and are available for as little as a week. While investing in fixed deposits, you should keep a few things in mind.
1. Interest Rate
- Before opening an FD account, it is important to check the rates offered by various banks because banks set their unique interest rates on fixed deposits.
- Invest only in a reputable bank that provides a fair rate for your money.
- In comparison to banks, NBFCs (Non-Banking Financial Companies) often provide better rates of interest on FDs.
- This indicates that using NBFCs to invest in FDs will enable you to receive higher returns over the same amount of time.
- Interest rates on fixed deposits range from 3.75% to 7.25%, depending on the duration.
- Based on variables like inflation and investor demand, interest rates may vary from time to time.
- Senior citizens may profit from a better rate of interest.
- If you’re above 60, you can typically get a premium of 0.25 to 0.75%.
- The calculation of compound interest occurs every three months.
2. Penalty for Premature Withdrawal
With the help of the early withdrawal option that comes with fixed deposit investments, you can take a partial or full withdrawal from your Fixed deposit account before maturity. You must, however, pay the penalty for this. Before opening the account, be sure to verify this penalty as well.
3. TDS Declaration
- If the bank determines that your FD interest income exceeds Rs 10,000 per year, they will charge Tax Deducted at Source (TDS).
- However, you must file Forms 15H or 15G as a statement for the same if you fall within the no income tax category.
- Make sure your disclosure is accurate in the bank’s records to prevent TDS from being deducted from the interest on your FD.
- FD interest collected over the course of a fiscal year is tax-free up to a maximum of 50,000 rupees (only for senior citizens).
- Investors can also benefit from the tax deduction provided by section 80C of the Income Tax Act, 1961, by using a tax-saving FD.
- Investors can deduct up to 1.5 lakh from their investment amount in this case, and the deposit has a 5-year lock-in term.
5. Deposit limits
Limits on Fixed Deposits can differ between public and private banks. Government-owned banks require a minimum deposit of Rs. 1,000 to start a fixed deposit account, although banks in the private sector typically have a larger deposit cap. There is no maximum amount. Your deposit qualifies as a bulk deposit and is eligible for a higher interest rate if it exceeds Rs. 1 crore.
6. Credit against the FD
With an overdraft facility, where a credit limit is granted with the FD serving as collateral, you can obtain an emergency credit against FDs. Throughout the credits’s term, the customer will continue to receive interest on the invested FD. Here, borrowers may withdraw funds from their overdraft account up to the sanctioned amount and return the loan in accordance with their ability to pay. Only the amount drawn until its return is charged interest.
Fixed Deposits, or FDs, are one of the safest investment options in India. You can invest in Fixed Deposits with complete comfort and confidence. But always remember to keep the above in mind before creating a Fixed deposit account and choose a reputable bank to experience maximum ease and efficiency.
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