Fixed Deposit: Features, types, advantages, tax treatment; Here’s all you need to know

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Updated: October 14, 2019 11:33:24 AM

One can invest their money in FDs of banks and non-banking financial companies (NBFC) for a fixed term ranging between 7 days to 10 years. This whole term is at a fixed interest rate.

debt funds, debt mutual funds, MF, bank fixed deposits, bank FD, safety, liquidity, FD interest, FD maturity, long-term capital gain, LTCG, inflation, adjusted return, tax efficiency, duration funds, accrual funds highest bank fd rate, senior citizen fixed deposit, fixed deposit, mutual funds, smart investment, how to invest money, SIP investmentOne can invest their money in FDs of banks and non-banking financial companies (NBFC) for a fixed term ranging between 7 days to 10 years.

Across all ages, Fixed Deposits (FDs) are one of the most preferred investment avenues especially for senior citizens and parents of young children. The foremost reasons being safe and carrying a minimal risk which helps in fulfilling both short and long-term goals.

Generally, there are two types of FDs- cumulative FDs and non-cumulative FDs. The prior offers compounded interest on a quarterly or yearly basis, and the interest is paid at the time of maturity. This suits individuals who look forward to saving as well as growing their savings. Non-Cumulative Fixed Deposit, on the other hand, offers interest on a monthly, quarterly, half-yearly or annually basis, and is ideal for people wanting a regular income from their savings.

One can invest their money in FDs of banks and non-banking financial companies (NBFC) for a fixed term ranging between 7 days to 10 years. This whole term is at a fixed interest rate. You can get the interest in two ways- either at regular intervals, you can get it credited to your account or get the interest at the time of FD maturity by opening a recurring deposit account.

While depositing the money in a fixed deposit account, you can make only a one-time deposit. However, if you want to make more deposits, you need to open a fresh FD account. Note that, after locking the deposit for a fixed tenure, investors cannot withdraw the money before maturity. After investing the amount, you will receive the maturity amount only at the end of the tenure. However, if you want to withdraw the amount then you need to pay a penalty, to make pre-mature withdrawals.

Find out the advantages of Investing in FDs:

  • FDs offer greater stability being one of the safest investment instruments.
  • The principal amount is at no risk of loss, along with assured returns on the fixed deposit.
  • The investment capital is safe because the fixed deposit is not affected by fluctuations in the market.
  • Investors can also opt for the interest payout on a monthly basis, to manage their monthly expenses.
  • FDs generally offer a higher rate of interest and highest returns for senior citizens.

Tax treatment of Fixed Deposit

Ranging from zero to 30 per cent tax is deducted at source on fixed deposit; it is deducted on the basis of the investor’s income tax bracket. You will be charged exactly 10 per cent TDS by the bank if you earn interest more than Rs. 10,000 in a year. However, for this, you need to submit a copy of your PAN card. In the absence of which 20 per cent TDS will be deducted, which can be claimed if your total income is less than the minimum tax slab of 10 per cent. Also, to avoid the tax deduction you can submit Form 15G to your bank if you do not fall in the income tax bracket. To avoid the tax deduction, senior citizens can submit Form 15H. Also, if you fall in the higher tax bracket (20-30 per cent) then you will have to pay extra tax over and above the deducted TDS.

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