What is a fixed deposit?

A fixed deposit, also known as an FD, is an investment instrument offered by banks, as well as non-banking financial companies (NBFC) to their customers to help them save money. With an FD account, you can invest a sizeable amount of money at a predetermined rate of interest for a fixed period. At the end of the tenure, you receive the lump sum, along with an interest, which is a good money-saving plan. Banks offers different rates of interest for a fixed deposit account.

You can choose a fixed deposit for a period ranging from minimum 7-14 days to maximum 10 years. This is why an FD is sometimes called a term deposit. When you open a fixed deposit account at a specific interest rate, it is guaranteed, for the rate of interest remains the same, irrespective of any changes, which happen due to market fluctuations.

The interest you earn is either paid at maturity or on periodic basis depending on your choice. You are not allowed to withdraw the money before the maturity. If you want to, you have to pay a penalty.

Features of a Fixed Deposit

To know what is a fixed deposit clearly, you need to know its prime features. Here are the significant ones:

• Assured Returns : The returns of a fixed deposit are guaranteed. You will get the same return agreed at the time of opening an FD. This is not the case with market-led investments, which offers returns based on the fluctuations of interest rates in the market. You will receive the same interest that was agreed to you, even if the interest rates fall. This makes the fixed deposit more secured than any other investments.
• Rate of Interest :The interest rate on a fixed deposit varies depending on the term you choose. However, the rate of interest is fixed.
• Offers Flexible Tenures : You can choose the tenure from 8 days to 10 years for an FD
• Return on Investment : The interest you earn on the fixed deposit depends on the maturity period or tenure of the FD. With a higher tenure, you earn a higher interest. Moreover, the returns you get on your investment depends on whether you opt for receiving the interest periodically or reinvesting the interest, which is called a cumulative FD. You gain the benefit of compounding with this FD.
• Loan against FD : You can avail a loan against your fixed deposit in case you are in urgent need of funds. This saves you from closing your FD prematurely.

Eligibility Criteria for FD investment

The following entities are eligible to open an FD account in India:

• Indian resident
• NRI
• Minors
• Senior citizens
• Companies
• Partnership firms
• Individuals or joint investors
• Societies or clubs
• Societies or clubs
• Sole proprietorship

Advantages of Fixed Deposit

Fixed deposits have several advantages, some of which are:

• Low risk : Market risks do not affect the returns on your fixed deposits.
• Insurance : Your deposits are insured for up to Rs.1 lakh by the RBI.
• Loan against FD : You can avail loans of up to 90% of your deposit amount at very low interest rates. This will usually be around 2% more than the FD interest rate.
• Easy liquidity :In the case of an emergency, you can easily liquidate your FD and release the funds.
• Regular income : You can get the interest sum credited as per your requirements on a monthly, quarterly, or annual basis.
• Tax benefits : Investing in tax-saving fixed deposits will fetch you tax deductions of up to Rs.1.5 lakh in a financial year.
• Senior citizens : Senior citizens are offered a higher interest rate compared to regular customers.
• Earn interest on your deposits and see your wealth grow.
• Flexible tenures.

Fixed Deposit Tax Benefits

There are many benefits to Tax Saving Fixed Deposits. These are as given below:

• Individuals, Hindu Undivided Family (HUFs), and minors investing jointly with adults can invest.
• The investment qualifies for tax deduction under Section 80C of the Income Tax Act.
• Tax Deducted at Source (TDS) is applicable on the interest earned, according to the income tax bracket, but this can be avoided by submitting Form 15G (for senior citizens it is Form 15H).
• Senior citizens can claim deduction of up to Rs.50,000 on interest earned under Section 80TTB.
• Nomination facility can be availed except if it is held by or on behalf of minors.
• Higher interest rates are offered for senior citizens.
• Fixed deposits in post offices can be transferred from one post office to another.