Wednesday, March 20, 2019
Finance
 « Bank Savings

Fixed Deposit 

A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above, thereby earning a higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of the deposit. 

Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account.  The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited, premature withdrawal before maturity period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India. 

Features
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. The banks are free to offer varying interests in fixed deposits of different maturities. Interest is compounded once a quarter, leading to a somewhat higher effective rate.  

The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-. 

Before opening a FD account, try to check the rates of interest for different banks for different periods. It is advisable to keep the amount in five or ten small deposits instead of making one big deposit in one branch of the bank. In case of any premature withdrawal of  partial amount, then only one or two deposit need be prematurely encashed. The loss sustained in interest will, thus, be less than if one big deposit were to be encashed. Another advantage of splitting the deposits in different branches, is tax exemption.

Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. The thing to consider before investing in an FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away your real returns.

Returns
 The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the maturity period (duration) of the FD and the amount invested. Interest rate also varies between each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its maturity. Some banks have facility to pay interest every quarter or every month, but the interest paid may be at a discounted rate in case of monthly interest.  The Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years. 

Duration
*Interest rate (%) per annum
15 - 45 days
4 - 5 %
30 - 45 days
4.25 - 5 %
46 - 90 days
4.75 - 6 %
91 - 110 days
6 - 7.50 %
181 - 270 days
7.5 - 8.25 %
1 - 2 years
8.25 - 9.25 %
2 - 10 years
8.75 %
1111 Days
9.25 %

*Subject to change.

Advantages
Bank deposits are the safest investment after Post office savings because all bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get loan up to 75- 90% of the deposit amount from banks against fixed deposit receipts. The interest charged will be 2% more than the rate of interest earned by the deposit. With effect from A.Y. 1998-99, investment on bank deposits, along with other specified incomes, is exempt from income tax up to a limit of Rs.12, 000/- under Section 80L.  Also, from A.Y. 1993-94, bank deposits are totally exempt from wealth tax. 

The 1995 Finance Bill Proposals introduced tax deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/- and above per annum. i.e the interest income above a particular limit (which is subject to change periodically) from the Fixed deposit amount will be taxable and 10% will be deducted at source.

At present interest incomes up to Rs.10000/- per year on fixed deposits is exempted from tax. If the interest income is above 10,000, one can get exemption by submitting Form 15G Or Form 15H in the case of senior citizens (above 65 years of age) to the bank if your income is below the taxable income. In case you are not submitting the forms, the tax will be deducted and you have get it through filing the tax returns, which will normally take another one year to refund the amount you paid as tax.

How to apply 
One can get a bank FD at any bank, be it nationalised, private, or foreign. You have to open a FD account with the bank, and make the deposit. However, some banks insist that you maintain a savings account with them to operate a FD. When a depositor opens an FD account with a bank, a deposit receipt or an account statement is issued to him, which can be updated from time to time, depending on the duration of the FD and the frequency of the interest calculation. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in.