What is a Fixed Deposit?
Fixed Deposits are one of the most popular financial instruments as they help you save for future and offer tax benefits at the same time. They are suitable for both short-term and long-term investments.
Below are some of the frequently asked questions regarding FDs that will help you make an informed decision pertaining to your investments in FDs.
A Fixed Deposit is an investment instrument wherein a certain amount of money is deposited with either banking or a non-banking organization for a fixed period of time at a fixed rate of interest. The amount of interest is received monthly, quarterly, or annually. After the tenure of the FD is complete the amount of principal is returned to the investor.
Who is eligible to invest in FD?
Any resident individual belonging to HUF, public or private company, society, or a partnership firm is eligible to invest in FD.
Is there any minimum and maximum tenure of investing in Fixed Deposit?
The minimum tenure of investing in an FD is seven days whereas the maximum tenure can go up to 10 years.
How much money can one invest in a Fixed Deposit?
The lower limit and the maximum limit of investing in an FD depend upon the bank. However, if the investor wishes to invest above Rs.1 crore, he is entitled to avail a special customized interest rate.
What are the different kinds of FDs?
The Fixed Deposits can be divided into two categories:
Cumulative Fixed Deposit- In these the interest is compounded annually and is received at the end of the maturity period along with the principal amount of money invested. The interest is taxable and the tax liability depends on the tax slab in which the investor falls.
Non-cumulative Fixed Deposit- In this the interest is received on monthly/quarterly/half-yearly/annually as per the preference of the investor.
What is the approximate range of interest on FD in India?
The interest rate on FD in India ranges from 5% to 9%. The interest rates and facility on FD varies from bank to bank. The rate of interest on FD is higher than many other investment instruments.
How the amount of interest earned on FD paid?
If the investor has invested the money in traditional Fixed Deposit scheme, the amount of interest earned is credited to the savings account on monthly or quarterly basis.
If the investor opts for investing in a reinvestment scheme a compound interest is added to the principal amount in every quarter and is reinvested.
It is at the discretion of the investor to receive the interest on monthly, quarterly, or annual basis.
What is the Fixed Deposit rate in case of post office?
The interest rate on FD in post office varies from 6.9% p.a. to 7.7% p.a. based on the tenure of the deposit. The rate of interest for senior citizens is 0.5% higher than the rate of interest offered to other depositors.
Can the amount of Fixed Deposit withdrawn before maturity?
Yes, in case of emergency you can close your Fixed Deposit before maturity. But, in this case, the bank will pay 0.5% to 1% less interest as a penalty for withdrawing the amount before maturity.
Is Fixed Deposit transferable?
No, FD is non-transferable.
What documents are required for opening an FD Account?
For opening a Fixed Deposit Account one needs the following documents:
- Identity Proof
- Address Proof
- Passport Size photographs
What are the tax benefits associated with an FD?
The amount of interest received on FD is taxable. However, the depositor can submit Form 15G or Form 15H in case of senior citizens to your bank for avoiding payment of tax on FD.
Can a depositor take loan against FD?
Yes, the depositor gets the benefit of availing a loan against FD for up to 70% to 90% of the principal amount. The interest charged on this loan ranges from 2% to 2.5% more than the interest paid on the FD.
What happens if the FD holder passes away?
In case of unforeseen death of the FD holder, the amount can be claimed by his/her nominee at the time of maturity.