Fixed deposits have been an ideal saving and investment avenue for investors looking for assured regular income with minimum risk. However, in terms of returns, bank FDs have become unattractive in the last few years as interest rates have dipped considerably. For instance, most banks ranging from the State Bank of India (SBI) to HDFC Bank are offering an average FD interest rate of 6% to 6.75% currently, while a few others like Deutsche Bank and IDFC Bank are going the extra mile to offer FD rates of up to 7.5%.
“Moreover, when compared to other investment avenues like ELSS or liquid funds over a three-year period, FDs get dwarfed. The former instruments can give anywhere between 10% and 20% return when compared to the meager 6% offered by bank FDs on average,” says Adhil Shetty, CEO, Bankbazaar.com.
FDs, however, may still may make sense for senior citizens who are content with low returns as long as their money remains safe. The Budget 2018, in fact, has made FDs more attractive for senior citizens, by providing under Section 80TTB a specific exemption of interest income on deposits with banks and post offices up to Rs 50,000. Also, for the first time interest income from fixed deposits and recurring deposit schemes would also be covered, which brings a big relief for senior citizens.
Further, “in case of senior citizens, TDS u/s 194A shall not be deducted, if the interest amount does not exceed Rs 50,000. Earlier, the limit for the purpose of TDS deduction was Rs 10,000,” says CA Abhishek Soni, Founder, tax2win.in.
According to Soni, at this moment, you can still take the advantage of this benefit by investing in fixed deposits in the name of your parents. This considerate move would help in achieving dual benefits, i.e. your parents will feel secure with respect to the future concerns and also, your tax liability for the current year would go down.
Here are the latest FD interest rates, ranging from SBI and HDFC Bank to Kotak Mahindra Bank:
|>=1 to <=2||2 to <=3||3 to <=5|
|INDIAN- PUBLIC SECTOR|
|Bank of Mah||6||6.5||6.25||6||16-Jan-17|
|Punjab & Sind||6.25||6.6||6.6||6.55||16-Jan-18|
|INDIAN PRIVATE SECTOR|
|J & K Bank||6.25||7||6.5||6.25||11-Feb-18|
Data taken from respective bank’s website as on 16 February 2018
For each year range, maximum offered interest rate is considered; Interest Rate for normal fixed deposit amount below Rs 1 crore
Apart from senior citizens, bank FDs are suitable for short-term investments. “Ideally when you have a goal which is near and you need liquid money, you can think of fixed deposits. Also, individuals in a low tax slab or not in any tax slab may think of FDs,” says Jitendra P S Solanki, a Delhi-based financial planner and the author of ‘Financial Planning for Special Needs Children Families’.
However, FDs may not be suitable for growth-oriented individuals as they will not help their funds grow significantly.