A Fixed Deposit (FD) is a financial instrument offered by banks and NBFCs. It is a popular savings tool in India. FDs provide a safe way to earn interest on your money over a fixed period. This period is known as the ‘tenor’.

So, how does an FD work? When you open an FD account, you deposit a lump sum of your hard-earned money for a fixed tenor. The bank or NBFC agrees to pay you interest at a specified rate. This rate is predetermined and does not change during the tenor.

The interest on an FD can be compounded or paid out at regular intervals. If you choose compounding, the interest is added to the principal amount. This allows you to earn interest on the new, larger amount in subsequent periods. If you choose regular payouts, the interest is credited to your savings account. This can be done monthly, quarterly, half-yearly, or annually.

Benefits of FDs

Safety

FDs are one of the safest investment options. The principal amount is secure, and the returns are guaranteed.

Fixed Returns

The interest rate remains constant throughout the tenor. This means you know exactly how much you will earn.

Flexibility

You can choose the tenor of your FD. It can range from a few days to several years.

Easy to Open

Opening an FD account is simple. You can do it online or visit your bank or NBFC branch.

Interest Rates on FDs

Interest rates on FDs vary between banks and NBFCs. The rates also depend on the tenor and the amount deposited. Below is a table showing interest rates from a few banks and NBFCs as of July 2024:

Issuers

Maximum Interest Rates

Maximum Tenors

Minimum Deposit Amount

Bajaj Finance

8.85% p.a.

60 months

₹15,000

Shriram Finance Limited

9.40% p.a.

60 months

₹5,000

PNB Housing Finance Limited

7.75%

120 months

₹10,000

SBI

7.60%

120 months

₹1,000

HDFC Bank

7.50%

60 months

₹5,000

ICICI Bank

7.75%

60 months

₹10,000

Note: Interest rates are subject to change. Please check the official websites of the banks and NBFCs for the latest rates.

Types of FDs

Standard FD

This is the most common type. You deposit a lump sum for a fixed tenor at a fixed interest rate.

Tax-saving FD

Comes with a lock-in period of 5 years. Offers tax benefits under Section 80C of the Income Tax Act, 1961.

Senior Citizen FD

Available for individuals above 60 years. Offers higher interest rates than standard FDs.

Cumulative FD

Interest is compounded and paid at the end of the tenor.

Non-Cumulative FD

Interest is paid out at regular intervals (monthly, quarterly, or annually).

Documents Required for Fixed Deposit

To open an FD account, you need to submit the following documents:

Identity Proof

Aadhaar card, PAN card, passport, or voter ID.

Address Proof

Utility bills, Aadhaar card, passport, or voter ID.

Photographs

Passport-sized photographs.

Bank Account Details

If you are opening the FD with a bank. 

How to Open an FD Account

  1. Choose the Bank or NBFC

Research the interest rates offered by different institutions. Choose the one that offers the best rate for your desired tenor.

  1. Select the Tenor

Decide how long you want to keep the money in the FD.

  1. Fill the Application Form

Provide personal details and the amount you wish to deposit.

  1. Submit the Documents

Provide the required documents for verification.

  1. Deposit the Amount

Request for transferring the money to the FD account.

Premature Withdrawal

Sometimes, you may need to withdraw your FD before the end of the tenor. This is called premature withdrawal. Banks and NBFCs allow premature withdrawal, but it comes with penalties. The penalty could be a lower interest rate or a small fee. It is important to understand the penalty rules before opting for premature withdrawal.

Tax Implications

The interest earned on a Fixed Deposit is subject to taxation. It is included in your income and taxed according to your applicable income tax slab. Issuers deduct Tax Deducted at Source (TDS) if the interest exceeds ₹40,000 in a financial year. For senior citizens, the limit is ₹50,000. To avoid TDS, you can submit Form 15G. Senior citizens should submit Form 15H. These forms declare that your total income is below the taxable limit.

Renewal and Maturity

At the end of the tenor, the FD matures. You can choose to renew the FD or withdraw the maturity amount. If you do not give any instructions, some banks and NBFCs automatically renew the FD. The renewal is for the same tenor at the prevailing interest rate. Review the interest rates at maturity. Decide whether to renew or withdraw the amount.

Conclusion

Fixed Deposits are a reliable and straightforward savings tool. They offer safety, fixed returns, and flexibility in tenor. By understanding how FDs work and the benefits they offer, you can make informed decisions. Knowing the documents required will help you maximise your savings. 

For the latest interest rates, always check the official websites of banks and NBFCs. This will provide you with detailed information.