If you're looking to invest some of your money in a Fixed Deposit in India but aren't sure how this works or what all the details are, don't worry. You're not alone. This article is a complete guide to Fixed Deposits in India for those who are curious about them or want to learn more about them. The intention of this article is only to educate you about how FDs work and give you a starting point so that you can do more research based on your own needs.
What exactly are Fixed Deposits?
A Fixed Deposit is a way of saving money where the investor agrees to keep his/her funds invested in the bank for a fixed period of time. During this period, the interest rate that the bank offers is generally higher than that of a regular savings account.
What are the types of Fixed Deposits?
There are two types of Fixed Deposits available in the Indian market:
1. Cumulative Fixed Deposit Schemes
Investors of a Cumulative FD scheme benefit from compounding. On maturity, you will receive both the collected interest as well as the principal amount. The lender reinvests the interest money instead of delivering it to you on a regular basis. Thus, you will be earning interest on interest using it. For people who do not require regular dividends from their fixed deposit investments, a cumulative FD scheme is a viable option.
2. Non-Cumulative Fixed Deposit Schemes
Non-cumulative Fixed Deposit schemes are recurring income plans that allow the investor to choose the time range for interest payments. Rather than reinvesting the accumulated interest amount, the lender delivers it to you in this case. The overall interest earned is much lower than Cumulative Fixed Deposits. This non-cumulative FD is a viable alternative for older persons and others who want to earn regular cash returns on their FD investment.
Pros and Cons of Fixed Deposit-
Pros:
- Fixed Deposit is a secured way of investing with minimum risk.
- A Fixed Deposit comes you a guaranteed income that is not affected by market fluctuations.
- A Fixed Deposit has a set duration and allows for rollover.
- You can utilize it as security in need and receive up to a limit of 90% of your investment as a cash advance.
- You can also select the frequency of interest payments.
Cons:
- Fixed Deposit is a type of debt instrument.Thus, less expected returns.
- Earned Interest is taxable income.
- Premature withdrawal incurs a fee from the lenders.
Taxable Income from Fixed Deposit in India
While there is a lot of excitement and joy in investing, it is also important to keep track of the tax implications before making any investment. The interest received from Fixed Deposit in India is taxable.
Here is a breakdown of the Fixed Deposit income tax bracket.
- FDs for Indian Residents: 10% Tax
- FDs for NROs: 30% Tax + applicable surcharges & cess
However as an Indian Resident FD holder, TDS of 20% will be levied if you do not give PAN information. If your entire income from interest falls below the 10% tax bracket, you can claim back the deducted TDS. You can also provide Form 15G or 15H to your lender to declare that you do not fall into the tax bracket and no TDS needs to be deducted.
Conclusion
I hope this guide has helped in providing you with some of the basic information and tools required to invest your hard-earned money wisely. With foresight, planning, and a little bit of help along the way, you should be able to make informed decisions about how you store your money and what kind of interest rates you can expect to receive on your FD investments. To help you make further educated decisions, you can check FD Interest Rate Calculator Online and Fixed Deposit Interest Rates 2022 for free.
