Fixed deposits are good savings instruments, ever popular with people in this country.
Even if you are focusing on creating an investment portfolio to beat future inflation, FDs should form a part of the portfolio to ensure that a percentage of your funds are put aside in secure investments.
Before Investing in Fixed Deposits
Before you actually create FD accounts, do some research. Go to financial portals and find out the interest rates and terms offered on FDs by different banks. Also research FD offers from NBFCs and private companies. These offer higher interest to offset risk.
There are many different fixed deposit schemes from banks and NBFCs. These include long term deposits, short term deposits, specific period deposits, and special deposits like tax-saver FDs and Senior Citizen Fixed Deposits.
Fixed Deposit tips
You can create Fixed Deposits for periods from 7 days to 10 years or more
Generally, long-term deposits offer higher rate of interest
Special schemes like Tax-Saving FDs have a longer lock-in period of around 5 years
Senior citizen fixed deposits generally carry slightly higher interest rates fixed deposits
Premature closure of FDs invites penalties and loss of interest
Your entire interest earnings on FDs are liable to taxation according to your tax slab
The Rs. 10,000 exemption on interest earnings is applicable only to Savings Account interest not FD interest
Banks, NBFCs, and companies do a TDS on your interest earnings above a certain amount for the year
For Corporate FDs, if your interest earnings exceed Rs. 5000, TDS is done at 10%
In other FDs like bank FDs, if total interest earned for the financial year is above Rs. 10,000, TDS is deducted at 10%
If you have not submitted your PAN Card details, TDS is done at 20%
Interest earned on fixed deposits held in your name across all branches of a bank are calculated for TDS
If you are in the tax-free slab, submit Form 15G or Form 15H, depending on your age
If you are in a higher tax slab, you should declare your entire interest earnings for taxation
Apart from the TDS, if you are in the 20% or 30% tax slab, you should pay the additional tax due on your interest earnings as self-assessment tax
Fixed Deposit investment tips
Despite relatively lower RoI, fix deposit is good for you. While investing, keep the points about FD tax and TDS in mind. Choose good FD schemes. If you have large funds to invest, split it into smaller amounts and create fixed deposits in different banks, in different schemes. Also invest some of your funds in higher interest schemes offered by NBFCs and Corporate FDs.
You can gauge the safety of corporate and NBFC companies by looking at the credit rating on these firms provided by agencies like ICRA, CARE, and CRISIL. Those with triple A ratings, like Bajaj Finserv with a MAAA rating from ICRA and FAAA rating from CRISIL are safe investment options
Matters of Investment Size
Use the FD investment calculator at the bank, NBFC, or third-party website to find out the optimal tenure and interest rates which will provide the best return on your investment. Do not park your entire spare funds in one or two deposits.
Make smaller deposits, choose different tenures to increase interest earnings and liquidity. Reinvest the matured amount in FDs or other investments according to your preference. Take advantage of tax-saving deposits where you can claim the invested principal for tax exemption.
There are numerous reasons why you you should invest in fixed deposit, especially now, when you are depositing old currencies in your savings accounts. Your savings account pays you very little interest, so don’t let the funds stagnate in these accounts.
Even if you need liquidity, create a Flexi Deposit. In this type of deposit, your spare funds can be invested in a linked FD, earning higher interest. When you need funds for cheques or bills, funds can be redirected from your linked FD back to your Savings Account.