Everything You Need To Know About Fixed Deposits
A fixed deposit, often known as an FD, is a type of investment offered by banks and non-banking financial firms (NBFCs). People invest a set amount of money in an FD for a set period of time at a predefined rate of interest. The rate of interest varies by a banking institution, although it is typically higher than the rate of interest paid on savings accounts. Fixed deposits are useful for a range of time periods, ranging from 7-14 days to 10 years. A term deposit is another name for a fixed deposit. Regardless of how interest rates change or how the economy performs at the period of investment, you will receive fixed returns. You can also earn interest on your interest. This makes it simple to earn a large sum of money.
Features of an FD
- Assured returns: Fixed deposits, unlike market-linked securities, give a guaranteed rate of return on investments, whereas market-linked securities may result in losses owing to market volatility. In FDs, your money is safe, and the returns are larger than in savings accounts.
- Compounding’s Beneﬁts: With FD investments, you can earn interest on interest, resulting in bigger returns and faster money multiplication.
- Low Minimum Investment: If you want to start investing but don’t have a lot of money, FDs are an excellent alternative because you can start investing with as little as Rs. 500.
- Liquidity: Premature withdrawal of FDs is allowed, but you will lose some interest in the time you don’t use them. However, since you can liquidate the FD in an emergency, you gain the benefit of liquidity.
- Easy to invest in: Fixed deposits are the simplest instruments to invest in, whether offline and online, via net banking or mobile banking.
- Senior Citizens: Senior citizens can earn more from their life savings and go closer to a no-compromise retired life.
The entities listed below are eligible to open an FD account in India:
- NRI Indian resident
- Senior citizens
- Firms that form partnerships
- Individuals or groups of investors
- Clubs and societies
- One-person business
How Does an FD Account Work?
When you put your money into a fixed deposit, you effectively lock in the amount for a specific time period. Throughout the term, you can earn interest on the principal balance in a cumulative manner. The interest earned is added to the principal amount after each specified interval.
You can handle many FD accounts with varying tenures because the tenures are variable. As a result, you’ll be able to get a better return on your money. Senior citizens are eligible for higher rates, which normally range from 0.25 to 0.65% above the current rate. Non-resident Indians (NRIs) can also open FD accounts in India, which are known as NRE and NRO FDs.
You can open a term deposit account with a bank if you already have a savings account with them. Some banks will let you start a fixed-income account even if you don’t have a savings account with them. However, such institutions will ask you to go through a KYC process, which will demand you to produce documents such as proof of identification, proof of address, passport-size pictures, and so on.
How to open a Fixed Deposit
An FD can be opened in one of two ways: online or offline.
- Online: It is simplest to open an FD account with a bank with which you already have a relationship. Simply log in to your net banking account, fill out the online application for an FD, and submit it. KYC is not required in these situations because your bank already has the information. To transfer funds from your account, you can utilize the internet banking service.
- Offline: To open an FD account, go to your bank’s nearest branch and fill out an application form. Submit it to the bank official with the required papers. Once you’ve deposited the requisition, you’ll obtain the FD receipt.
How to Calculate FD Rates
You can calculate how much interest your fixed deposit will earn over time using a free online interest calculator. Based on the interest rate and the principal amount, the FD Calculator will determine how much your deposit will yield at maturity. This is determined by a number of factors, including the interest compounding frequency, which differs per bank. It can be done every month, every quarter, every half-year, or every year.
What is the procedure for obtaining a TDS exemption?
TDS exemption is available to individuals with interest earnings of less than 40,000 per year (50,000 for senior people). Investors can fill out Form 15G, however, older citizens must fill out Form 15H.
Is there a minimum age to start an FD?
A youngster as young as one year old can open an FD. Minors, on the other hand, must have a parent or guardian open one on their behalf. Anyone above the age of 18 is eligible to open an FD account.
What are the minimum and maximum deposit amounts for FDs?
The minimum amount of investment in an FD varies from bank to bank. Some plans allow you to start investing with as little as ₹100. There is no upper limit, though you can check with your bank for further clarification.
How to Invest in a Fixed Deposit?
With your preferred financial institution, you can open an FD account both online and offline. Go to the bank or NBFC's local branch to open an FD. Fill out the forms and give in your KYC documents.