Fixed Deposits (FDs) are a favorite investment avenue for all class of investors, due to safety of capital invested and guaranteed returns.
Investing in fixed deposits could save you from the risk associated with equity. However, how much to invest in FD depends on the risk capacity of an individual. One should also remember that returns from bank fixed deposits could be less compared to other investments such as equity or other company deposits.
If you are one of the investor who believes and in bank fixed deposits, then here few facts which you must know.
1) In India, under deposit insurance scheme by the Reserve Bank of India, fixed deposits held in bank upto Rs 1 lakh are insurance covered. So, it is better to diversify amount into different banks if you want to invest more than Rs 1 lakh.
2) In most of the banks, senior citizens are offered better interest rates.
3) Company fixed deposits or any NBFC's offers fixed deposits with high interest rates then bank fixed deposits. Don't get confused at this point, better to analyse the risk associated with company fixed deposits. Not to forget, higher returns are backed by higher risk. Company deposits are unsecured deposits.
4) Interest rates on a bank FD, are almost always compounded quarterly. Check if it is otherwise.
5) Risk involved in FD is locking your principal for longer during. In case if the latest interest rates are high your amount will be locked in for particular period, and many banks charge for premature withdrawal. So, better to lock in for short period with high interest rate.
6) Bank deposits attract TDS if the interest income crosses Rs 10,000 per annum. You must add the interest income to your other sources of income and pay tax depending on the tax slab.
7) In order to save tax, you could opt for putting the fixed deposit in the name of unemployed spouse, if any.