A Fixed Deposit is an investment which offers higher rates of interests as opposed to a regular savings account. The account holder is required to park a significant amount of money in a financial institution for a predetermined tenor. The tenor typically ranges from 1 month to 5 years. The deposit will be held by a fixed interest rate that can be either received by the account holder in regular intervals i.e. fortnightly, monthly, quarterly or yearly basis or upon maturity. For instance, an account holder who has opted for a monthly interest payout, will receive a Fixed Deposit monthly income. FD schemes are offered by institutions like banks, Non-Banking Financial Companies, building societies or credit unions.
The risk-averse nature of the Fixed Deposit scheme combined with an assurance of high returns makes it a common investment choice in India. The rates of interest typically range from 4%-8% and are priced differently by each financial institution based on the tenor. The lower limit of deposit that can be parked is usually Rs.1,000, while the upper limit varies with each institution.
The following enlists the interest rates per annum of FD in 2018 (for deposits below Rs.1 crore) offered by a few popular banks in the Indian economy:
| Name of the bank | Regular Interest Rates | Senior Citizen Interest Rates | Minimum Limit for Deposit |
|---|---|---|---|
| Ratnakar Bank | 7.50 | 8.00 | Rs.100 |
| Kotak Mahindra Bank | 7.25 | 7.75 | Rs.10,000 |
| ICICI Bank | 7.00 | 7.50 | Rs.1,000 |
| City Union Bank | 7.10 | 7.35 | Rs.100 |
| Axis Bank | 7.10 | 7.60 | Rs.5,000 |
| YES Bank | 7.10 | 7.60 | Rs.10,000 |
| HDFC Bank | 7.25 | 7.75 | Rs.5,000 |
| State Bank of India | 6.85 | 7.35 | Rs.1,000 |
The interest rates mentioned in the table are applicable only to the specific tenor dictated by the banks. In the current market, Ratnakar Bank offers the highest interest rate of 7.50% and 8.00% for the general public and senior citizens respectively. The tenor corresponding to this rate is between 24 months and 60 months. The general trend reads that a longer tenor provides a higher interest rate. However, it must be noted that the longest tenors do not guarantee the highest rates. It is recommended to compare the competitive interest rates along with the preferred tenor before choosing a plan. Most of the FD schemes offer a higher interest rate i.e. 0.25%-0.50% than the regular rates to senior citizens.
A majority of the banks that offer Fixed Deposits have an online portal which enables a potential investor to calculate an estimate of the monthly interest payout that they could obtain.
The following steps could be followed to use the FD monthly payout calculator:
Fixed Deposit is a popular mode of investment among the general public in India.
The following describes a few features that make FD a profitable investment:
Most of the banks and other financial institutions attach penalty charges on premature withdrawals from Fixed Deposit accounts. There are two variants of FDs viz. FD with an option of premature withdrawal and FD without an option of premature withdrawal. Some banks permit partial withdrawals but not complete withdrawal of the funds before the date of maturity.
For Fixed Deposits with premature withdrawal facility, banks usually obey the following formula:
Rate of interest for premature withdrawal = Rate of interest at the time of investment – 1%
This formula is generally applicable for FDs with sweep-in facility, as well FDs with a periodic interest payout frequency. Hence, preclosure or premature withdrawal could lead to loss in interest income. It is recommended that investors carefully analyse the tenor best suited to their needs while choosing a plan, to avoid premature withdrawals.
These steps can be followed to convert annual interest rate into monthly interest rate:
Fixed Deposit schemes with a premature withdrawal facility can be closed before the date of maturity. Most banks charge a penalty for preclosure of an FD account. An account holder can visit the respective bank and file an application to close the FD. The bank would then process their request and attach the prescribed charges to the account. This would then be followed by transferring the returns to the account holder and returning any documents that were submitted while opening the account. Many banks also offer an online service to close an FD account.
The following steps could be followed to close or break an FD account online:
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