Fixed deposits at banks are one of most convenient, safe and hassle-free investment instruments that also provide reasonable returns. With the advent of online banking these days, you can open FD online within few seconds and clicks. The tenures in fixed deposits are fixed and usually provide higher return on higher duration. For example, a one-year deposit might fetch 6% per annum return while a 5-year deposit might fetch 7% per annum return depending upon the financial institution. Following are some of the key things to know about fixed deposits:
1. The rate of return on fixed deposits is fixed. Unlike other high-risk investments like stocks, mutual funds, and debt funds, FD Interest rates aren’t dependent on fluctuating market rates.
2. All banks provide flexible tenures to choose from. You can open an FD account for as low as 6 months to a maximum of 5 years.
3. You can avail loan against your Fixed Deposits. Some banks provide up to 90% of the total FD value as personal loan. Unlike other unsecured personal loans, you get lower interest rates when you secure your loan with your FD as collateral.
4. You can choose between cumulative and non-cumulative options. In cumulative fixed deposit option, interest is accumulated over the tenure of the FD and is paid only at the time of maturity. This helps you in getting a lump-sum amount on maturity. You can use a simple FD Calculator to know the amount you will receive on maturity. A non-cumulative FD works on the opposite principle. In these fixed deposits, the interest payments are made to the investor in a periodical, steady, and timely fashion. This makes it the most sought-after investment option by retired investors, or those who seek frequent cash flow.
5. It’s expensive to break an FD as pre-closing of fixed deposit leads to penalty.
6. Interest earned through your Fixed Deposit won’t be tax-free; on the contrary, it falls under the taxable slab of your income. If your interest earned is higher than Rs.10,000, it will be deducted as TDS at the rate of 10%. To increase your tax benefits, you can go with Tax-saver Fixed Deposits which are available only on 5 years duration.
Each financial saving instrument has their own pros & cons and hence it is always advisable to be aware of those advantages & disadvantages before investing.