Fixed Deposits (FDs) are financial products where money is invested for a certain period of time at a fixed rate of interest in a bank, post office, corporates or Non-Banking Financial Company (NBFC). Bank Fixed Deposits have been the go to product for most investors, given the lower risk and ease of investing.
Here is a complete checklist before you select a Fixed Deposit.
|
Factor |
Available Options | Action |
|
Maturity |
7 days to 10 years |
Select maturity depending on your financial goal.
Note that while withdrawal before maturity is allowed, there is a 1% penalty for early withdrawal and you will get a lower rate (v/s the booked rate) for the FD that is broken. |
|
Interest Rates |
Varies by tenor, but fixed for the duration of the FD. Currently ranges from 3.5% to 7.5%* |
Select the maturity carefully as even a one day difference can affect the rate.
You can refer to www.bankbazaar.com to check FD rates offered by various banks. |
|
Size |
No limit |
Preferably invest in multiple smaller FDs versus a big lumpsum, as incase of premature withdrawal only the required FDs can be liquidated. |
|
Nominee |
Available |
Ensure you add a nominee for your FDs. |
|
Maturity Instructions |
Auto renew, credit to savings |
Select the maturity instructions, depending on your goal.
Note that if auto renew is selected, you will not have control over the rate at renewal. |
|
Additional features |
Sweep-in, Overdraft against FD’s, Recurring FDs offered by some banks |
Check for additional features that your bank offers when booking your FD. |
|
Process |
Can be booked online or by visiting the branch | See what works best.
Note that only FDs booked online can be broken online. For the ones booked at the branch, you will need to visit the branch personally. |
|
Risk |
Deposits upto 1 lakh with each bank are insured | So far, there has never been a default by any bank on fixed deposits in India.
However, while lesser known banks may offer higher rates, preferably book your FD with a reputed bank. |
|
Tax |
Depends on the income tax slab.
TDS* is deducted at 10% if the interest income is over 10,000/- |
FDs that have a maturity period of 5 years are eligible for deductions upto 1.5 lakhs under 80C.
Provide your Pan card details, or TDS will be at 20%. If you are exempt from income tax (total income <2.5 lakh) submit form 15G or 15H to the bank at the beginning of each financial year to avoid TDS. |
*Please note that senior citizens typically enjoy higher rates of interest. Also interest income from FD, savings account & recurring deposits received by senior citizens would be exempt from income tax upto Rs.50,000/-
