What are Fixed Deposit

In this article we will learn What are Fixed Deposit, what are the Features of Fixed Deposit, Types of Fixed Deposit, Fixed Deposit Advantages & Disadvantages, How to Open a Fixed Deposit, Taxability of Fixed Deposit.

A Fixed Deposit (FD) is a most basic savings tool used in India, a financial instrument which is provided by banks or non-banking financial institutions (NBFCs) which provides investors a higher rate of interest than a regular savings account, till the given maturity date. It may or may not require to create a separate account. The term fixed deposit is most commonly used in India and the US. It is known as a term deposit or time deposit in various other countries.

A fixed deposit means that the money is fixed for a period of 1,2,3,4,5 or 10 years (depending upon need a very short-term FDs are also available in Indian Market like eg. 1 day,7days, 1month etc.), and cannot be withdrawn before maturity unlike a recurring deposit (RD) or a demand deposit. Certain banks / NBFCs may allow pre-mature withdrawal with some penalty. Due to this limitation, some banks offer additional services to FD holders such as loans against FD certificates at competitive interest rates. Banks may offer lesser interest rates under uncertain economic conditions.

In India these investments can be safer than Post Office Schemes as they are covered by the Indian Deposit Insurance and Credit Guarantee Corporation (DICGC). However, DICGC guarantees amount up to ₹ 500000 per depositor per bank. In India they also offer income tax and wealth tax benefits.

What are the Features of Fixed Deposit.

One of the major features of a Fixed Deposit is that the returns of the Fixed Deposit are guaranteed, one the day of the investment you are aware about the guaranteed returns you will receive on maturity. It is very easy to open a fixed deposit account, we will learn about this in the article. Various banks/ NBFCs offer higher rate of interest, that makes it easy for you to choose from wide range of variety. Fixed Deposit are available in various tenure starting from 1day to maximum of 10years this makes it easier to plan your maturity depending upon your short-term, mid-term, long-term goals. One can have multiple FD accounts depending upon once need. Also, certain Fixed Deposit offer Tax Benefit.

Types of Fixed Deposit

Here are a few common ones:

Standard Fixed Deposits. Almost every financial institution offers this type of fixed deposit to its customers. …
Tax-Saving Fixed Deposit (Only Applicable for Banks & Post Office FDs).
Special Fixed Deposits.
Cumulative Fixed Deposits.
Non-Cumulative Fixed Deposit.
Senior Citizen’s Fixed Deposit

Advantages and Disadvantages of Fixed Deposit

Advantages or pros of Fixed Deposit.

Easy Availability.
Guaranteed Returns.
Tax Exemption*.
Provide Partial withdrawal.
Automatic Renewal.
Multiple FDs can be opened.
Loan Facility can be availed.
Better interest rates for Senior Citizens.
Open to HUFs and NRIs

Disadvantages of Fixed Deposit.

Reinvestment risk.
Interest are taxed.
TDS Taxation.
Interest rates can be lower than inflation rate.

How to Open a Fixed Deposit.

Basically, there are 2 easy ways you can open a fixed deposit

Offline Method: Visit any bank you have a account or any bank which offers a good interest even if you don’t have account with that bank and fill up a Fixed Deposit form along with your KYC and that bank staff will book a FD for you.
Online Method: Visit your net banking portal or mobile app and search for Fixed Deposit tab, fill in the details and your Fixed Deposit will be opened instantly.

Taxability in Fixed Deposit.

In India, tax is deducted at source by the banks on FDs if interest paid to you at any bank exceeds ₹ 10,000 in a financial year. This is applicable to both interest payable or reinvested per customer. This is called Tax deducted at Source (TDS) and is presently fixed at 10% of the interest. With CBS banks can tally FD holding of a customer across various branches and TDS is applied if interest exceeds ₹ 10,000. Banks issue Form 16 A every quarter to the customer, as a receipt for Tax Deducted at Source.

However, tax on interest from fixed deposits is not 10%; it is applicable at the rate of tax slab of the deposit holder. If any tax on Fixed Deposit interest is due after TDS, the holder is expected to declare it in Income Tax returns and pay it by himself.

If the total income for a year does not fall within the overall taxable limits, customers can submit a Form 15 G (below 60 years of age) or Form 15 H (above 60 years of age) to the bank when starting the FD and at the start of every financial year to avoid TDS.

until that has been linked to their FD) and the balance amount will automatically be converted in their new FD. This system helps them in getting their funds from their FD account at the times of emergency in a timely manner.

So I hope I have answered all possible questions regarding Fixed Deposit , Please share this article to your friends and family so that they can be benefitted with the knowledge. Also please write into me if you want to know about any other investment avenue so that I can write about it.

What are Fixed Deposit (FD)