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Bank Fixed Deposits are one of the most common
saving avenues in India. Read about opening bank fixed deposits
account in India
Bank Fixed Deposits
Bank Fixed Deposits are also known as Term Deposits.
In a Fixed Deposit Account, a certain sum of money is deposited in the
bank for a specified time period with a fixed rate of interest. The rate
of interest for Bank Fixed Deposits depends on the maturity period. It
is higher in case of longer maturity period. There is great flexibility
in maturity period and it ranges from 15days to 5 years. The interest
can be compounded quaterly, half-yearly or annually and varies from bank
to bank. Minimum deposit amount is Rs 1000/- and there is no upper
limit. Loan / overdraft facility is available against bank fixed
deposits. Premature withdrawal is permissible but it involves loss of
interest.
Things to Remember Before Opening a FD Account
Before opening a fixed deposit account, check the financial position of
the bank. Also, try to check the rates of interest for different banks
for different periods. Instead of putting a big amount in one fixed
deposit, keep the amount in five or ten small deposits. This way, in
case of any premature withdrawal of partial amount, then only one or two
deposits may need to be prematurely encashed. Thus, the loss of interest
will be less than if a single big deposit were to be encashed. Check
deposit receipts carefully to ensure that all details have been properly
and accurately filled in. Do not leave the renewal column unfilled.
Otherwise, on maturity the fixed deposit amount will go back into an FD.
Before investing in a FD it is important to consider the rate of
interest and the inflation rate. A high inflation rate can eat into your
real returns. So, it is vital to have a look at the inflation rate
before arriving at the real rate of interest.
Advantages of Fixed Deposit
- Fixed deposits with the banks are nearly 100% safe as all the
banks operating in the country, irrespective of whether they are
nationalised, private, or foreign, are governed by the RBI's rules
and regulations, and give due weightage to the interest of the
investor. Till recently, all bank deposits were insured under the
Deposit Insurance & Credit Guarantee Scheme of India, which has
now been made optional. Nonetheless, bank deposits are among the
safest modes of investment.
- One can get loans up to 75- 90% of the deposit amount from banks
against fixed deposit receipts. Though the interest charged will be
slightly more than the interest earned by the deposit.
Tax Implications
- The amount invested in fixed deposits with a maturity
period of 5 years in a Scheduled bank is eligible for tax deduction
under section 80C. However, the interest earned on the deposit is
taxable.
- Tax will be deducted at the source, if the interest income
on a fixed deposit per annum exceeds Rs.10000.
How To Open a Bank Fixed Deposit Account
You can open a FD account with any bank, be it nationalized, private or
foreign and make the deposit. However, some banks insist that you open a
savings account with them to operate a FD.
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