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When you put your money to work in fixed deposits, you basically lock the amount for a fixed period of time. 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.
Since the tenures are flexible, you have the option to manage multiple FD accounts spread across different tenures. That way, you will be able to earn more on your investments. Senior citizens are eligible for additional rates, usually 0.25% to 0.65% more than the existing rate.
Other than this, even NRIs (Non-resident Indians) can open FD accounts in India in the form of NRE (Non-resident External) and NRO (Non-resident Ordinary) FDs.
You can open a term deposit account with a bank where you already have a savings account. There are banks that let you open an FD account even if you don’t have a savings account with that bank. However, with such banks, you have to go through a KYC process where you have to present relevant documents, including ID proof, address proof, passport size photographs, among others.
The following entities are eligible to open an FD account in India:
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The documents required for opening an FD account are as given below:
You can obtain the application form to open a fixed deposit by:
For Non-resident Indians, there are two types of accounts they can open with Indian banks—Non-resident External account (NRE) and Non-resident Ordinary account (NRO).
NRE FDs are beneficial for those earning in foreign currency and who would like to get the amount converted to the value of Indian currency. Some of the major highlights for an NRE FD account is that the interest earned is tax-free and both the principal and the interest amount are completely repatriable. The only pitfall is that the money deposited can get affected due to currency rate fluctuations.
Unlike NRE FDs, the interest earned through NRO FDs is taxable based on the income tax category. Wealth and gift tax are also applicable. However, reduced tax benefit can also be availed under the Double Taxation Avoidance Agreement (DTAA).
Also, only the interest earned can be completely repatriated, but the principal amount can be repatriated within a certain bracket or set limit. However, the plus point is that in case of NRO fixed deposits, there are no exchange rate fluctuation risks. You can deposit money in foreign or Indian currency in case of NRO accounts. So, if you are staying abroad and your total income also includes earnings from India, NRO FDs can be an effective gateway to manage your funds within India.
Here are the factors to look into when choosing a fixed deposit:
Fixed deposits have several advantages, some of which are:
Fixed deposits offer both protection of a fixed amount as well as a regular flow of income. This makes it is ideal for those who have a lump-sum amount that they do not need to use for some time. It is also the right financial product for those who are risk averse as the returns are not subject to market risks but offer a fixed rate of interest throughout.
You can open an FD in two ways: online and offline.
Online: To open an FD account online, it would be easiest to do so with the bank where you already have an account. All you have to do is use the net banking facility, fill up the online form for opening an FD, and submit it. In such cases, KYC will not be required as your bank will already have the details. You can transfer the funds through your account using the internet banking facility.
Offline: Visit the nearest branch of your bank and fill up the application form for opening an FD account. Submit it to the concerned official with the required documents. Deposit the required amount and you will receive the FD receipt.
There are many benefits to Tax Saving Fixed Deposits. These are as given below:
To find out how much interest your fixed deposit will yield for a specific tenure, you can use a free online compound interest calculator. Based on the rate of interest, the FD Calculator will determine how much your deposit will yield at maturity depending on the principal amount. This is calculated based on several factors including the interest compounding frequency which would depend on the bank. It can be on a monthly, quarterly, half-yearly, or annual basis.
The Reserve Bank of India lends to banks at interest rates that can vary based on the prevailing economic conditions. When interest rates are revised by the RBI, banks too may change the interest rates offered on their fixed deposits. This can increase or decrease based on the repo rate (the rate of interest at which the RBI lends to banks).
The minimum amount required to open a fixed deposit can range from Rs.1,000 (in State Bank of India) to Rs.5,000 (in Axis Bank).
Yes, you can withdraw your FD at any point in time unless the bank has a lock-in period.
There’s no upper cap for fixed deposits. However, you can check with your lender to see if there are any set limits.
The fixed deposit can be doubled depending on the rate of interest that is being offered.
Yes, it is risk free and provides returns that are guaranteed.
This will depend on the rate of interest being offered and if it remains consistent throughout the five years.
Your FD interest can be compounded monthly, quarterly, half-yearly or annually as per your choice. However, frequent compounding can reduce the rates.
A 5-year FD cannot be broken before its tenure of 5 years is completed.
Your FD tenure can range from 7 days to 10 years depending on the term you choose.
Yes, fixed deposits are safe because the returns are not affected by fluctuations in the stock markets. Also, the Reserve Bank of India provides insurance for up to Rs.1 lakh of your fixed deposit in the event of a banking crisis.
No, it’s not tax free. However, you can get tax exemptions if you opt for tax-saving fixed deposits. Under such FDs, you can claim a deduction of up to Rs.1.5 lakh under section 80C of the Indian Income Tax Act, 1961.
In a fixed deposit, your money is locked away for a fixed period of time in a bank. The principal amount that is deposited earns you interest on a cumulative basis.
If you break your fixed deposit before the maturity period is over, you will get a lower rate of interest and a penalty will be deducted from the amount before it is given back to you.
While opening an FD, you can mention that after maturity the amount can be transferred to your savings account. Or you can mention in the form that the amount to be renewed after maturity. If you choose the second option, after maturity, the amount will be reinvested as fixed deposit with the same tenure and rates as the previous one. If nothing is notified in the form, the concerned lender will notify you. In case you don’t respond within 14 days after FD maturity, your account will be renewed automatically.
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