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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.

1. Where To Open A FD Account

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.

2. Types Of Fixed Deposit Accounts

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.

3. Types Of FD’s For Non-Resident Individuals (NRI)

There are two types of fixed deposit accounts that are allowed Non-resident Indians in Indian Banks,

  • NRE fixed Deposits: NRE FDs are made for those individuals who earn in foreign currency and wish to get the amount converted to Indian currency value. The interest earned on the deposit is tax-free and both principal and the interest amount are completely repatriable. However, these funds are volatile to the market rate fluctuations in currencies.
  • NRO Fixed Deposits: NRO FDs can be best suited to individuals who want to manage their funds within India. The interest earned on the deposit is tax-free and both principal and the interest amount are completely repatriable within a certain bracket or set limit. However, the advantage of NRO fixed deposits is they are unaffected by the risk of market rate fluctuation. The interest income earned through NRO fixed deposit is taxable at 30%.

Fixed Deposits Best Investment or Not

4. Benefits Of Fixed Deposits

  • Guaranteed Returns Fixed deposit: (FD) accounts are relatively risk-free when compared to other forms of investments as the investors receive a fixed rate of interest on the amount they have invested.
  • Higher Interest Rates Fixed Deposit: These Deposit schemes offer a comparatively higher rate of interest than other forms of traditional investments such as savings accounts and recurring deposits.

5. Tax Benefit on Fixed deposits

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.

Author Bio

Taxblock, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Individual & Corporate View Full Profile

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April 2024