Fixed Deposit
FDs are one of the oldest and most common methods of investing. When it comes to assured returns, choosing the right type of savings scheme makes all the difference. Fixed Deposits let you make the most of value-added benefits as you create wealth at low risk. Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits.
What is a Fixed Deposit?
Fixed deposit is investment instruments offered by banks and non-banking financial companies, where you can deposit money for a higher rate of interest than savings accounts. You can deposit a lump sum of money in fixed deposit for a specific period, which varies for every financier.
Once the money is invested with a reliable financier, it starts earning an interest based on the duration of the deposit. Usually, the defining criteria for FD is that the money cannot be withdrawn before maturity, but you may withdraw them after paying a penalty.
Features of Fixed Deposit
- Fixed deposit enable investors to earn higher interest on their surplus funds
- You can deposit money in a fixed deposit account only once, but to deposit more money, you need to create another account
- Though liquidity in fixed deposit is lesser, you can look for higher rates of interests, which are higher in case of company fixed deposit
- Fixed deposit can be easily renewed
- Tax is deducted at source, from interest on Fixed Deposit as applicable, as per the Income Tax Act, 1961.
Benefits of Fixed Deposit
There are several advantages of fixed deposit investments, some of which have been given below:
- They are the safest investment instruments, and offer greater stability
- Returns on fixed deposit are assured, and there is no risk of loss of principal
- You can opt for periodic interest payouts, to help you manage your monthly expenses
- There is no effect of market fluctuations on your fixed deposit, which ensures greater safety of your investment capital
- You can benefit from higher interest rates offered by company fixed deposit
- Some financiers also offer greater returns for senior citizens
Taxability on Fixed Deposit
The interest earned from fixed deposit is taxable. The tax deducted at source on FD can range from 0% to 30%, depending on income tax bracket of the investor. Financiers deduct 10% TDS if your interest earned is more than Rs. 10,000 in a year, if your PAN details are available with them. However, in case your PAN details are not provided to your financial institution, 20% TDS will be deducted.
If your total income is below the minimum tax slab of 10%, you can claim a refund of the deducted TDS. You can also avoid the deduction by submitting Form 15G to your financial institution, and submitting Form 15H if you’re a senior citizen. If you fall in the higher tax bracket (20% or 30%), you would have to pay extra tax over and above the TDS deducted by your NBFC or bank.
