Bank Fixed Deposit Scheme
A fixed deposit (FD) is a type of wherein a fixed interest rate is given on sum deposited. In this scheme, the depositor keeps a fixed amount of money in an account known as FD account. The money is deposited only once at the time of account opening. If it is Recurring Deposit money is deposited at regular intervals like monthly or quarterly. At the end of the tenure, the interest amount is calculated on the principal amount and the total sum including interest is paid back to the depositor cumulatively. Fixed Deposits account earns higher interest rates than a regular savings bank account.
Fixed Deposits are also known as ‘term deposits’ or ‘time deposits’. If you wish to deposit additional amount as fixed deposit, you need to open another FD account. Term deposits are considered safest investment option compared to other savings instruments. The duration of a fixed deposit may vary from as short as 7 days to 10 years. The rate of interest on Fixed Deposits is based on the tenure of fixed deposit and bank interest rates policies. Key features are:
- Can be opened by all Individuals (Residents, including minors and HUFs) and Non Individuals (Companies, Firms etc.
- You can mention nominee who can claim on your deposit on your death.
- Some Banks have premature penalty on closing of fixed deposits before maturity period. Most banks do not take this penalty only interest is recalculated for the time for which money was with the bank.
- Sweep FD’s are also provided by many banks in which term deposits are linked with SB account, When balance goes above a certain sum on savings account its is converted to FD.
- You can also avail loans on your fixed deposits to meet any financial emergency. In loan against FD, your deposit is the security for the loan. Depending upon the bank, you would get a loan on your FD up to the extent of 75-95% of the FD amount which varies from one lender to another. Rate of interest on FD loans are 1%-2% higher than your FD rate.
Fixed Deposit Interest Rates for Senior Citizens-Senior citizens are offered higher rate of interest on FD mostly 0.25% to 0.50% higher than that offered to other individuals.
Salient Features of Senior Citizen FD are:
- Age of senior citizen should be 60 or more on the date of investment.
- Tenure on senior citizens FD is between 7 days to 10 years in most of the banks.
- Senior citizens FDs earn 0.25% to 0.50% higher interest compared to regular deposit rates.
- Loans against FDs are available on senior citizen FD.
- Penalties are applicable in case of premature withdrawal of FDs of senior citizens as applicable to other regular accounts.
Breaking of FD account-On the date of maturity FD can be redeemed or renewed.
Whether Partial Withdrawal is Possible?-Partial Withdrawal is not possible on Fixed Deposits. You will have to close the FD and make a new deposit after deducting the amount you need for your expenses.
FD Interest Rates Calculator -The formula for fixed deposit interest calculation is based on the interest rate and frequency of compounding
The formula used for calculating interest on fixed deposit is shown below
A = P * (1+ r/n) ^ n*t
I = A – P
A = Maturity value
P = Principal amount
r = rate of interest
t = Number of years
n = Compounded interest frequency
I = Interest earned amount
TDS on Fixed Deposit Interest -TDS is deducted on FD’s when cumulatively interest on all your Fixed Deposit with a Bank exceeds Rs 10000 at a rate of 10% if your PAN card is furnished to the bank otherwise 20% in case of Form 60.
Types of FD
Regular FD -These deposits are made for a fixed time period such a s 7 days, 6 months. 1 year etc. You earn a high rate of interest on your deposit amount depending on the tenure of FD.
Tax saving FD –Tax Saver FD has a locking period of 5 years before which it cannot be redeemed.
- Interest is taxable like any other Fixed Deposits.
- Loans cannot be taken on tax saver fixed deposits.
- Interest can be taken monthly, quarterly or yearly in your savings account.
