What is a fixed deposit?
FD or Fixed Deposit is a way of investing your money in a lump sum amount for a certain tenure. The principal amount deposited earns interest cumulatively in the tenure period. FD generates an amount of interest that is greater than that of a savings bank account. This benefit makes an FD quite popular. You should be mindful of the FD interest rates when you go for a fixed deposit. The interest rates from FD vary from bank to bank. The tenure of investment in an FD can be short-term or long-term. It also comes with a flexible tenure varying from seven days to ten to fifteen years. A premature withdrawal attracts some loss to the financial gains from the deposit.
FD is quite trustworthy due to its security. It is risk-free in a bank where there is a savings bank account of yours. Some banks allow one to open an FD account even if they don’t have a savings account with them. Opening and closing an FD account have become easier today owing to digitalization. You will also have an online facility to open an FD account. You should check with the bank the interest rates offered by the bank on the FD. One can check SBI FD rates as it’s one of the biggest and oldest banks of India.
How to Start a Fixed Deposit Account?
Investors can open a fixed deposit account online and offline. Here are some key factors worth keeping in mind.
- Online or offline FD opening: You can visit a branch of a bank to open an FD account. You can do it online too. You have to fill in a form in the bank, submit your photograph, do the KYC, and deposit the required amount of money to be kept in the FD. If you want to do it online, you should visit the bank’s website, find out the link, click on it, and follow the procedure as directed. You have to share your contact and other details with the bank. You can make an online transfer of your money to the bank for FD. The maturity amount of the FD is transferred to your savings bank account if you opt for that.
- FD limit: There are maximum and minimum limits to an FD account. It differs from one bank to another. Many banks allow a minimum deposit of Rs 5000. For an NRI or foreign currency deposit, the rules and terms and conditions are different. Most banks will prefer online deposits.
- Interest: You deposit in an FD to gain interest on your deposit. The interest rate varies from bank to bank. It also depends on the deposit tenure. The interest rate is calculated based on 365 days a year. The interest rate calculated by rounding up to the nearest amount. If you are a senior citizen, you are entitled to a higher interest rate. The interest is calculated based on simple interest, but for a longer period, the interest can be compounded.
- Duration of deposit/Tenure: The tenure of the deposit varies from bank to bank. Tenure is the minimum period for which you will have to keep your money deposited. The minimum period is of 7 days and the maximum period is 10 to 15 years. The interest rate rises with the extension of the period of tenure. Compound interest is calculated in each quarter and then is added with the principal amount. You should keep these facts in mind while opening an FD account with a bank.
- Premature withdrawal: There is a penalty imposed for premature withdrawal. Even if you do partial withdrawal, there is a penalty imposed on that. Some banks don’t charge anything for premature withdrawal. If you don’t want the bank to impose a penalty on your premature withdrawal, you should select those banks for the FD that do not charge any penalty. If the money is withdrawn before the minimum period, no interest is paid.
- Taxation: Interest gained on an FD is liable for the tax. The interest gained is added to the income and you will pay the income tax on it based on your slab. Senior citizens are given some tax deductions. If one opens a tax-saving Fixed Deposit, you can enjoy tax-free FD. There is a provision of TDS also. If you earn interest more than 10, 000 in one year, TDS is deducted.
Process of opening online FD
- Visit the bank website where you want to open an FD account
- Create your ID and login
- You now select the “open FD account” option
- Submit the details
- Confirm the details and make the payment online
- Download the receipt
The procedure to open a fixed deposit account varies from bank to bank. The websites of different banks may provide you with different options. You should know it before clicking on the options.
You can open an FD account in any bank. You don’t need to have an account with the bank. You should visit the branch of the bank. You should follow the following steps:
- If you have a pre-existing account, fill in the FD application form and submit it at the counter of the bank.
- If there is no account, you should fill in the form and provide the necessary documents to the bank.
Benefits of an FD account
- Your returns are guaranteed. Your interest rate is not affected by the economy of the country or the market conditions.
- The tenure is flexible. You can select a long-term or short-term FD deposit.
- There is a high income through the compounded interest
- There is a steady source of income
- You can enjoy tax deductions under section 80C of the IT act.
- You can singly or jointly open an FD account.