One of the simplest forms of investment, bank fixed deposit (FD) are often called the retirees’ best friend. Given the security it offers, it is popular across all age groups and risk profiles. If you are also planning to include FD in your investment portfolio, here are ten factors you must check.
1. Rate of Interest
Timeline for the rate of interests includes different options such as monthly, quarterly, half-yearly, yearly or cumulative. The duration ranges from seven days to ten years. Some banks offer a special tenure of 444 days or 650 days too. Senior citizens get an additional 0.5 percent rate of interest on all tenures. Compare the FD rates across different banks to find the highest FD rate you can get.
Fixed deposits are insured under the Credit Guarantee Corporation (DICGC) and Deposit Insurance scheme. it guarantees that each depositor in a bank is insured up to a maximum of Rs 1 lakh (principal and interest separately). You should also know that deposits across different branches of the same bank are taken into account to calculate the insured amount.
Income tax slab is followed to levy taxes on the interest earned on bank FD. It is counted as ‘Income from other sources’ and then taxed. The bank deducts tax at source, i.e. TDS at 10% before paying interest to the depositor. No TDS is deducted if the interest income is below Rs 40,000 in a financial year.
4. Saving Tax on Interest
Submission of Form 15G/ Form 15H to the banker may help tax deduction at source. Also, if you have not withdrawn money for straight five years, concession in taxation is provided under section 80C.
5. Premature Cancellation
If you decide to get the deposit canceled prematurely, i.e. before the maturity date allotted, a penalty of 1 percent of the invested amount will be levied. Though, some banks do not levy a penalty – for investment in the same bank’s another term deposit for a longer-term than that of the original deposit.
6. Types of FD
You may either pay a lump sum in a fixed deposit or invest in recurring deposits (RD). Here, the amount has to pay a fixed amount at a regular interval i.e. monthly, quarterly, and so on. Similarly, there are Flexi-fixed deposits wherein a person can pay varied installments and can enjoy the security of a fixed deposit along with the liquidity of savings.
If capital preservation is your goal, investment in bank FDs should ideally be your choice. But, if you want to invest for long term gains, gaining through interest rates on fixed deposits in India may not be the best option. It is because due to inflation and after-tax deduction, returns get diminished. However, these are an excellent method to create an assured and fixed regular income and also work well for those who are in lower tax slabs.