Fixed deposits basically mean putting a certain amount of money for a fixed period. You can earn interest on the principal sum throughout the tenure on a cumulative basis. The interest earned gets added to the principal amount after every specific interval. The investor will get interest up to 6% of simple interest at the end of the financial year. Senior citizens are eligible for additional benefits, usually 0.25% to 0.65% more than the existing rate.
You can open a term deposit account with a bank where you already have a savings account. Apart from this, there are several banks that let you open an FD account even if you don’t have savings account with them after having a KYC process where you must present relevant documents, including ID proof, address proof, passport size photographs, among others.
There are various types of Fixed deposits depending upon the objectives behind them
1. Standard Fixed Deposits: It is the standard FD scheme available at all banks where a certain sum of money is deposited for a fixed tenure and the rate of interest is pre-determined by the bank. The tenure of these deposits can range from 7 days to 10 years and interest rates are higher than a savings account
2. Tax Saving Fixed Deposits: These types of deposits are instrumental in saving tax where you can claim tax exemption up to Rs. 1.5 lakh in a year These FDs have a lock-in period of 5 years during which you cannot withdraw the amount and only one-time lump sum deposits are allowed in these types of Fixed deposits.
3. Special Fixed Deposits: These are like the standard FDs where the funds are invested for specific time periods. The only difference is if you don’t withdraw the money for the specified period, you will earn higher interest on it than Standard FDs.
4. Senior Citizen Fixed Deposit: The senior citizens’ fixed deposit scheme allows benefits to the citizens who are above the age of 60 years. These FD schemes provide an additional interest rate of around 0.50% over the regular interest rates with a flexible Tenures
5. Flexi Fixed Deposit: These are the types of FDs that are linked to your savings account whereby you can start with an initial deposit of your choice and get it linked with your savings account.
There are two types of fixed deposit accounts that are allowed Non-resident Indians in Indian Banks,
Fixed deposits can also provide tax benefits under section 80C of the income tax act. Investors can benefit up to Rs. 1.5 lakh, as prescribed under Section 80C of the Income Tax Act 1961.
The author Sushant Gangurde is a legal analyst @Taxblock India who aims to educate people about various tax laws and financial planning.