Diwali, the festival of lights and prosperity, is not only a time for celebration but also an opportunity for financial planning. If you’re contemplating investing your hard-earned savings in a fixed deposit this Diwali, you should consider several crucial factors. Fixed deposit investments are a well-regarded investment choice, known for their guaranteed returns and low risk. In this article, we will explore the advantages of fixed deposit investments and the seven essential aspects you should be aware of before investing in FDs this Diwali.
Advantages of Investing in Fixed Deposits
Fixed deposits offer several benefits:
- Assured Rate of Return: Fixed deposits promise a predetermined interest rate, shielded from market fluctuations. This ensures you know the exact interest and maturity value when you open an FD account.
- Flexible Tenure: FDs come with different periods, ranging from 7 days to 10 years. You can choose a tenure aligning with your financial goals and liquidity needs.
- Regular Income: Opt for periodic interest payouts, and FDs can provide you with a steady income stream. Payout intervals include monthly, quarterly, half-yearly, or annually, according to your preference.
- Tax Benefits: Under Section 80C of the Income Tax Act, 1961, you can claim deductions from taxable income by investing up to Rs. 1.5 lakh in a tax-saving FD for a minimum of 5 years. Note that interest earned on tax-saving FDs is taxable as per your income tax slab.
- Loan Facility: Fixed deposits can serve as collateral for loans, enabling you to borrow up to 90% of your FD’s value at lower interest rates compared to unsecured loans.
Types of Fixed Deposits
Several types of fixed deposits are available:
- Cumulative Fixed Deposit: Interest compounds quarterly or annually, paid along with the principal at maturity. Ideal for long-term wealth accumulation without regular income needs.
- Non-Cumulative Fixed Deposit: Interest is paid at fixed intervals—monthly, quarterly, half-yearly, or annually. Suited for those seeking regular income without reinvesting interest.
- Senior Citizen Fixed Deposit: Tailored for individuals above 60 years, offering a higher interest rate (usually 0.5% more than regular rates) and additional tax benefits under Section 80TTB.
- Flexi Fixed Deposit: Linked to a savings account, this type allows easy withdrawals and deposits with daily interest rate calculation. Perfect for those who want the benefits of both FDs and savings accounts.
How to Invest in Fixed Deposits
Investing in fixed deposits is a straightforward process:
- Compare Rates and Features: Research different banks or NBFCs offering FDs, using online tools like an FD calculator to compare interest rates and maturity amounts.
- Choose the Best Option: Select the institution offering the best interest rate and terms that align with your needs. Verify their safety and credibility through credit ratings, financial performance, and customer reviews.
- Open an FD Account: Visit the nearest branch or use the online portal/mobile app of your chosen bank or NBFC. Complete an application form and submit the necessary documents, such as identity proof, address proof, and PAN card.
- Select Amount, Tenure, and Payout: Determine your deposit amount, tenure, and interest payout preferences. Consider options like auto-renewal and nomination.
- Deposit Funds: Contribute the amount by cash, check, or online transfer. You’ll receive a fixed deposit receipt or certificate with your account details.
Things to Keep in Mind While Making Fixed Deposit Investments
1. Interest Rates: The interest rate offered by the bank or financial institution is a pivotal consideration. It directly impacts your returns. Take your time to compare interest rates from different providers.
2. Tenure: The tenure of your fixed deposit is another vital factor. Typically, longer tenures come with higher interest rates.
3. Minimum Deposit: Different providers may have varying minimum deposit requirements ranging from Rs 1000- Rs 5000.
4. Interest Payout: Fixed deposits can be categorised into two types – Cumulative and Non-Cumulative. Cumulative deposits accumulate interest and pay it out at the end of the tenure, while non-cumulative deposits offer regular intervals.
5. FD Return Calculator: Employing an FD return calculator can be immensely helpful. It allows you to accurately estimate the interest you’ll earn on your fixed deposit.
6. Safety and Credibility: Safety and credibility should be at the forefront of your mind when selecting a fixed deposit provider.
7. Tax Implications: Interest earned on fd investments is subject to taxation. It’s essential to be well-informed about these implications before making your fixed deposit investment decisions.
Is Fixed Deposit an Investment?
Indeed, a fixed deposit is an investment avenue that allows you to earn interest on your savings. It’s a low-risk, low-return option, distinct from other investments like stocks or mutual funds, which carry higher risks and market volatility. FDs are ideal for risk-averse investors looking to safeguard their capital and secure guaranteed returns.
How Many Fixed Deposits Can You Open?
There is no limit to the number of FDs you can open in a bank or NBFC. Diversify your investments across various tenures, interest rates, and amounts to match your financial objectives and needs. Keep these factors in mind when opening multiple FDs:
- The interest earned is taxable as per your income tax slab. TDS of 10% is deducted if interest income exceeds Rs. 10,000 per financial year. Submit Form 15G or 15H to avoid TDS if your income is below the taxable limit.
- Deposits in banks or NBFCs are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs. 5 lakh per depositor per institution, covering both principal and interest. To ensure deposit safety, avoid exceeding Rs. 5 lakh in a single bank or NBFC, diversifying for maximum insurance coverage.
- Fixed deposits offer lower returns compared to other investments. Therefore, maintain a balanced portfolio that includes both FDs and other options based on your risk tolerance and return expectations.
In conclusion, fixed deposits are a reliable way to grow your savings with guaranteed returns and minimal risk. By understanding their various facets, you can make well-informed financial decisions, ensuring a secure financial future.
FAQs| Fixed Deposit Investments
There’s no limit to the number of fixed deposits you can have in a bank or NBFC. You can open multiple fixed deposits with different terms and amounts. Remember to consider the tax implications, insurance coverage, and diversification for optimal financial planning.
Your fixed deposit is secure in a bank up to Rs. 5 lakh per depositor per bank or NBFC. This protection is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), ensuring both the principal and interest amount. However, exceeding this limit in a single institution can pose risks in case of bank failure or fraud.
A fixed deposit can be an excellent investment if you seek low-risk, guaranteed returns on your savings. It offers tax-saving benefits, regular income, and loan facilities. However, it may not be suitable for those seeking high returns or inflation-beating investments due to lower liquidity and tax implications.
Fixed deposit investment involves depositing a lump sum for a fixed period, earning a predetermined interest rate. It’s one of the safest and most popular investment options in India, known for guaranteed returns, minimal risk, and tax advantages.
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.