Fixed deposits (FD) are considered as one of the most secured investment options available in India. Investors can choose the principal amount and the investment period for assured returns under this scheme. Financial institutions offer high interest rates than a regular savings account. Henceforth, FDs are more reliable than equity investments and mutual funds.
The rate of interest varies depending on various factors such as investment tenor, the amount invested, residential status and the financer. These fixed deposit schemes come with a lock-in-period, for a maximum period of 5 years. Moreover, investors are not allowed to withdraw the interest amount before the date of maturity.
Under Section 80(C) of the Income Tax Act, fixed deposit account holders can claim for a tax deduction for investment(s) of up to Rs. 1.5 Lakh with a tax-saving FD account. To calculate the account holder’s taxable income, the invested amount is deducted from the total gross income.
Financial institutions provide FD account holders fixed deposit interest rate calculator to estimate their returns in advance. Investors can thus apply for a fixed deposit by filling up an online application form on the website.
Rate of interest on FDs
The minimum amount you need to open a fixed deposit account depends on the financer you are investing in. Similarly, the rate of interest depends on the financer as well as on the period. Fixed deposits offers an additional rate of interest for senior citizens. The current interest rate ranges between 4% - 8.70%. The interest rates for investors other than senior citizens usually range from 3.50% - 8.35%.
Before investing in fixed deposits, it is very important to know there are two types of FDs. To know the difference between cumulative and non-cumulative fixed deposits, read below.
Cumulative fixed deposit interest rates
In a cumulative fixed deposit, the interest amount is estimated quarterly or yearly and is paid at the time of maturity. Under this scheme, the amount you benefit from your investment is re-invested; thus, you can avail the benefit of compounding returns. Henceforth, the accrued interest is added to the principal amount.
For example, if you invest Rs. 1 Lakh in a cumulative FD for 1 at an interest rate of 8% per annum for 12 months, your interest income will be Rs. 8,000. If you want to check the maturity amount of fixed deposits, you can use the fixed deposit interest rate calculator.
The return amount earned on a cumulative FD scheme is usually higher than that of a non-cumulative FD scheme. This scheme is suitable if you are looking to create a deposit for the long term.
Non-cumulative fixed deposit interest rates
In non-cumulative deposit, the interest is compounded on a monthly, quarterly, half-yearly and yearly basis. And thus, you can withdraw the amount on frequent intervals; which is after completion of each term. If you want to make your retirement funds pay you a monthly salary then opt for non-cumulative FD scheme.
For example, if you are investing an amount of Rs. 20 Lakh for a monthly non-cumulative period, at an interest rate of 8.05% you will benefit from an interest amount of Rs. 13,417. If the same amount is invested for quarterly at 8.10%, the amount you will earn as interest will be Rs. 40,500. Also check the return amount by using the fixed deposit interest rate calculator online.
These funds are independent of the variable market and thus provide FD account holders with highest interest rates on FDs in India along with substantial returns. Furthermore, the interest amount will not be taxable for up to Rs. 10,000 till 5 years.
If the FD account holder’s fixed deposit tenor is below or more than 5 years and the interest earned is more than Rs. 10,000, the lending institution or the NBFC will deduct TDS. The investor can claim TDS at the end of each financial year by submitting the forms 15G and 15H on the official website of the Income Tax Department.
To avail higher interest rates on FDs, you are required to meet the eligibility criteria along with your specific documents. Furthermore, beneficiaries can deposit the amount they want to invest via online payment method.
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