All you need to know about Fixed Deposits


04 Dec 2018

#FinancialBytes: Investing in Fixed Deposits? Here's everything you should know

When it comes to investment options in India, Fixed Deposits (FD) are among the top choices as they guarantee fixed returns to investors.

Fixed Deposits are also considered a safe investment option as they offer good returns, tax benefits, and involve no risks. FDs are also easy to open; some banks offer the facility online.

Here's everything you want to know about Fixed Deposits.


What exactly is a fixed deposit?

What exactly is a fixed deposit?

Fixed Deposit, one of the most preferred investment options, is nothing but a financial product offered by banks to customers that offer an interest rate higher than the regular savings bank accounts.

For investing in FDs, the customer deposits a fixed amount of money with the bank for a fixed period. The bank provides a fixed rate of interest until the FD reaches maturity.

Amount, Tenure

About the minimum and maximum limit and tenure for FDs

While the minimum deposit amount for opening an FD account (in most banks) is Rs. 1,000, there is no fixed maximum amount and it varies from bank to bank.

However, if the deposit amount exceeds Rs. 1 crore, investors can enjoy customized interest rates from their bank.

A majority of banks offer fixed deposits for a tenure ranging from 7 days to 10 years.

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How much interest can you earn from FD investments?

How much interest can you earn from FD investments?

FD interest rates vary from one bank to another and also depend on the tenure of the fixed deposit investment. They are also subject to change from time to time.

Before opening an FD account, the investors can check the rate of interest offered by visiting their bank branch or its website.

Senior citizens can earn higher rates of interest on their FD investments.

Investors can decide how and when they receive the interest

While opening an FD account (traditional scheme), investors can choose how they receive the interest on their deposits - monthly, quarterly, or annual interest payout. If they select a reinvestment FD scheme, the interest gets added to the principal amount for reinvestment and compounded periodically.


Investors can withdraw money mid-term, or take loan against FDs

In case of emergencies, investors can withdraw money from their FD account, fully or partially, before maturity too.

However, for premature withdrawals, interest rates are reduced; investors may have to pay the penalty.

Investors can also take loans against their FDs; the loan amount can range between 60-90% of the deposited amount; the loan interest rates are also much affordable compared to personal loans.


Is the interest earned on FDs taxable?

Is the interest earned on FDs taxable?

The interest earned (interest income) on fixed deposits are fully taxable under "income from other sources".

If the interest income from fixed deposits exceeds Rs. 10,000, then the bank deducts TDS (tax deducted at source) at 10% per annum.

However, investors can claim tax benefits under Section 80C of the Income Tax Act, on fixed deposits with a 5 or 10 year maturity period.

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