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Fixed Deposits are safe investments that provide regular interest income besides several other benefits. In this article, discover everything you need to know about FDs.
The scope of investment has expanded tremendously in recent times. Banks today offer multi-investment plans for you to choose from; one of them is Fixed Deposits. Fixed Deposits are the most secure method of investment. You earn guaranteed returns that are unaffected by market fluctuations. Continue reading to find out what is a fixed deposit, its feature, and the benefits of investing in them.
As the name suggests, Fixed Deposit is an investment plan wherein you can deposit your lump sum money for a fixed period and earn interest.
The rate of interest associated with the Fixed Deposit depends on the principal amount invested and investment tenure. So, on maturity, you will receive both the principal amount plus compound interest. However, this is true only if you opt for a cumulative Fixed Deposit. You also have the option of choosing non-cumulative FDs in which you earn interest income on a monthly or quarterly basis.
Investors typically prefer to invest in Fixed deposits because it is safe and straightforward. Once you deposit your lump sum money, you keep earning a fixed interest amount. Returns on Fixed Deposits are unaffected by changes in the interest rate or market fluctuations. You get guaranteed returns on your deposit and there is no apparent risk of losing your principal amount. You can choose to receive the interest earned either periodically or on maturity. However, you cannot withdraw your deposit before maturity, unless you do not mind paying the premature withdrawal penalty.
Now that you know what FD is, let us look at its features:
Most market-led investments are subjected to changes over time. Conversely, FD investments are secure and reliable. This is because the returns generated by FDs are fixed. They are not affected by market volatility and remain static, at least for the investment tenure.
The rate of interest offered depends upon your principal amount and chosen tenure. Typically, the FD interest rates are higher for long-term FDs and lower for short-term FDs.
FDs can be held for terms ranging from one week to 10 years. You can choose your preferred duration when opening the FD. Upon maturity, renewing the FD is easy, but it's important to check the current FD interest rates, as they may vary.
The interest earned on the principal amount is subjected to a tax deduction under the Income Tax Act,1961. You can calculate FD interest income in the 'other income sources' category while filing your returns.
To open an online Fixed Deposit, you only need a DBS Bank savings account and sufficient balance to fund the FD investment. At the time of opening your account, keep your Aadhaar card and Permanent Account Number (PAN) handy.
Before you invest in an FD, it is important to understand the benefits of Fixed Deposits.
Fixed Deposits offer guaranteed returns, providing a secure and predictable investment option. The interest rate is fixed at the time of investment, ensuring that you receive a specified amount at maturity. This assurance makes Fixed Deposits a popular choice for conservative investors seeking stability and minimal risk.
Opening a Fixed Deposit account is a straightforward process, requiring minimal documentation. Most banks and financial institutions offer online and in-branch services, making it convenient to start a Fixed Deposit. This simplicity and accessibility appeal to individuals looking for hassle-free investment options.
Fixed Deposits typically offer higher interest rates compared to regular savings accounts. This higher rate of return makes Fixed Deposits an attractive option for those looking to grow their savings more efficiently. The competitive interest rates help maximize the earnings on your invested capital.
With DBS Bank Fixed Deposit, you can avail of high interest rates and enjoy lucrative features and benefits such as selecting the preferred maturity instructions, earn interest at monthly or quarterly intervals and more.
Fixed Deposits come with flexible tenure options, allowing investors to choose the duration that best suits their financial goals. Tenure can range from a few months to several years, providing the flexibility to plan for short-term or long-term needs. This adaptability helps in better financial planning.
Investors can open multiple Fixed Deposit accounts to diversify their investment and manage liquidity needs effectively. By staggering the maturity dates of different FDs, you can ensure a steady flow of funds over time. This strategy helps in managing both immediate and future financial requirements.
Certain Fixed Deposit schemes, like tax-saving FDs, offer additional tax benefits under Section 80C of the Income Tax Act. By investing in these schemes, you can reduce your taxable income, thereby saving on taxes. This dual advantage of earning interest and saving on taxes makes fixed deposits an appealing investment.
Explained below are the four major types of Fixed Deposits:
Standard Fixed Deposits are investment options where you place a specific amount of money for a fixed duration at a predetermined interest rate. The tenure can range from 7 days to 10 years, and the interest rate varies depending on the length of the investment and the financial institution offering the deposit.
Regular Income Fixed Deposits are FDs with monthly interest payouts. These are popular among retirees and those seeking a regular income stream similar to a pension. Unlike other FDs, these provide monthly interest payments, offering liquidity. However, the interest rate is slightly lower compared to cumulative FDs, which pay out at maturity.
Tax-saving Fixed Deposits are favoured for their tax benefits under Section 80C of the Income Tax Act. These FDs have a five-year lock-in period, during which the invested amount cannot be withdrawn. By investing in a tax-saving FD, you can claim a tax deduction of up to Rs. 1.5 lakh annually. While the interest earned is taxable, the tax deduction is a key advantage, setting them apart from other Fixed Deposits.
Senior Citizen Fixed Deposits are tailored for individuals aged 60 and above, offering higher interest rates than regular Fixed Deposits. These FDs provide better returns on savings and come with flexible tenures ranging from a few months to several years, ensuring guaranteed returns. They are an excellent choice for retirees looking for a secure and predictable income stream.
Fixed Deposits (FDs) are ideal for conservative investors seeking a secure and predictable return on their investments. They are especially suitable for:
Those who prefer to avoid market risks and want guaranteed returns should consider FDs.
FDs offer a regular income stream and protect savings from market fluctuations, making them perfect for retirees seeking stability.
Individuals looking to benefit from tax deductions under Section 80C can invest in tax-saving FDs with a lock-in period of five years.
Those planning for specific financial goals within a few months to a few years will find FDs suitable due to their flexible tenure options.
As mentioned above, all interest earnings from Fixed Deposit are taxable under the Indian Income Act, 1961. The tax deducted from FD interest earnings may range from 0% to 30%, depending upon the income bracket of the investor.
Most financial institutions deduct 10% TDS if FD interest earnings are more than Rs. 10,000 in a year. This TDS rate is applicable only if you provide your PAN card details to the bank you open your FD with. If you fail to do so, the bank is authorised to levy a 20% TDS rate, as per the government mandate.
If your total income is below the minimum tax slab of 10%, you can claim tax exemption on your TDS deduction. But, if your total income falls under higher tax slabs of 20% or 30%, you will have to pay extra tax along with the standard TDS rate.
A Fixed Deposit is an excellent investment option for those seeking guaranteed returns without risking their capital. Additionally, an FD can serve as collateral if you need a loan from your bank. Now that you understand what a Fixed Deposit is and how it works, consider applying for one.
To save time and open an FD account remotely, download the Digibank app by DBS today. And if you’re an existing customer, you can simply open the app, select ‘deposits’ and then ‘Fixed Deposits’. Thereafter, you can follow the on-screen instructions and book an FD!
If you prefer to save time and effort and open an FD account remotely, download DBS Bank app right away!
*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.
