Fixed Deposits

What is Fixed Deposit?

A fixed deposit (FD) is a financial instrument offered by banks, post offices and also by other non-banking financial institutes. Fixed deposits are considered to be very safe investments instruments. In comparison to a normal savings account, a FD offers a higher rate of interest, which varies between 4-11 percent.

How much does one get at maturity?

• Varies according to the amount of the deposit and rules of banks, companies and post offices.
• Longer tenure of fixed deposit attracts higher interest. 
• The tenure can be from a few weeks to a few years, but the longest permissible tenure is 10 years.

Where to apply fixed deposits scheme and how?

For Post office:

• Address and identity proof is required.
• The individual has to choose a nominee and also get a witness signature to complete the process.
• The scheme is not available online.
• Joint account can be opened by two adults.
• Minors can also have accounts.

For companies:

• Contact the company for details. 
• Keep an eye out for ads given by the companies.

For Banks:

• Visit the bank’s website or visit the bank.
• The bank needs address and identity proof.

Advantages of having an FD

• FDs from reputed banks are a safe investment instruments because the banks are carefully regulated by the Reserve Bank of India.
• One can have the option of receiving regular income through the interest payments made month or quarterly.
• In case of post offices, an account can be transferred from one post office to another. 
• Any number of accounts can be opened in any post office.
• Assurance of fixed returns after the completion of the tenure.

Disadvantage of having an FD

• Company FDs is not as safe as bank FDs because if the company goes bankrupt one may lose their money.
• Fixed deposit returns are not very high. 
• A fixed deposit also does not offer protection against inflation.

Eligibility

• An adult can open an FD account.
• Companies have their own rules
• The minimum amount needed to open a fixed deposit account is Rs. 200 in Post Offices. Banks also require a minimum deposit, however, it varies from bank to bank.

Limitation

• Senior citizens do not get any special rates for FD schemes.
• Only residents of India are allowed to open FD accounts in Post Offices.
• In case of fixed deposits, the maximum non-taxable limit is 1.5 lakhs rupees per year.

Notes to remember

• Premature closure or withdrawal of FD is allowed, but at a cost. Banks may charge an amount or calculate with a lesser interest. Post Offices allow premature closure only after completion of 6 months.
• A minor aged 10 years or above can open and operate the account, but apply for a conversion after attaining majority, in case of post offices. 
• Fixed deposits interest is taxable and is added to the income as “income from other sources.” The Banks deduct the TDS on interest income when it is accrued and not when the FD matures.
• One needs to be cautious about companies which are giving interest a lot higher than average. They are mostly likely to be fraudsters.

FDs are associated with stability; however, it comes with several limitations. It is best for retirees but, surely any adult can invest to reap the calculated returns at the end of maturity when other schemes may or may not give better gains.