Fixed Deposit

Fixed deposit or FD is an investment instrument which is offered by banks and non-banking financial companies (NBFCs). This allows customers to safely park their savings and earn interest at a fixed rate thus giving them the much sought after stability. FD interest rate is higher than what customers get on depositing their money in a regular savings account.

Fixed deposits are called as term deposits in banking parlance since these deposits are maintained for a specific period (usually ranging from 7 days to 10 years).

Furthermore, these are secured under the insurance cover of up to Rs. 5 lakh by the Deposit Insurance and Credit Guarantee Corporation or the DICGC.

Why Invest in Fixed Deposits (FD)?
Fixed deposits come with various features and benefits that make investing in fixed deposits a sound decision, especially for risk-averse investors. These are mentioned below:

1. Guaranteed Returns on Investment
FD provides guaranteed returns on investments. The fixed deposit interest rate applicable (at the time of investment) is what the bank commits to pay on the investments and is always risk-free. It is because the FD interest rates are not market-influenced but fixed.

2. Risk-free Investment
Money put into a fixed deposit account with banks (commercial & small finance banks) is 100% safe (up to Rs. 5 lakh). DICGC, a fully owned subsidiary of RBI, guarantees to pay a compensation of Rs. 5 lakh (per bank) if the bank goes into liquidation. This deposit insurance is inclusive of the principal amount as well as the interest earned.

3. Easy Calculation of Returns
Since the parameters (interest rates and tenure) of a fixed deposit are fixed, it becomes easy to predict returns. This, in turn, helps in better financial planning.

With the help of Agroy free FD Calculator, you can easily check and calculate estimated returns on FD investments. Enter the amount, fixed deposit tenure and the interest rate corresponding to that tenure and hit the calculate button to see your estimated returns.

4. Tax Saving Investment
All banks and most of the NBFCs offer customers with 5-year tax-saving FD. This scheme allows you to claim deductions u/s 80C of the IT Act, 1961 while filing the ITR. You can invest from Rs 100 to Rs 1.5 lakh in it.

Tax saving fixed deposit comes with a lock-in period of 5 years. This means that premature withdrawal is not available. However, if the first account holder dies during the FD tenure, the nominee can exercise the premature withdrawal option. Also, the tax-saving fixed deposit does not have the loan against FD feature.

5. Loan against Fixed Deposit (FD)
Investors can apply for a loan on their FD investments in times of need. Instead of opting for high-interest personal loans, if you have invested in a fixed deposit, you can avail Loan against FD. This loan can be taken for up to 90% of the FD amount (approximately). This means if you have an FD of Rs. 10 lakh, you can easily get a loan of up to Rs. 9 lakh (approximately).

6. Credit Card against Fixed Deposit
If you have a fixed deposit, you can avail a secured credit card against it. However, the availability depends on the bank or NBFC involved. Its limit is set in line with your FD amount, thus making it secure.

7. Premature or Partial Withdrawal
FDs with premature withdrawal facility allow the depositors to close it before maturity (e.g. an FD booked for 3 years withdrawn after only 1 year). However, account holders are required to pay a premature penalty to the bank for withdrawing the FD amount before deposit tenure. This penalty usually goes up to 1-2%.

8. Affordability
Fixed deposit is a highly affordable investment option as you can start investing from as little as Rs. 100. However, the majority of the top banks in India allow a minimum deposit of Rs. 1,000.

9. Flexible Tenure
Investors can choose to deposit their savings anywhere from 7 days to 10 days. Some banks (e.g. IDBI Bank) offer an extended period of up to 20 years. The interest rates vary with different tenure options.

However, if you are looking to save on income tax, many consider the tax-saving fixed deposit schemes where savings are locked for a minimum of 5 years and the investment made here qualifies for 80C deduction of the IT Act, 1961.

In order to choose the best fixed deposit scheme, you should consider all the aforementioned points thoroughly.