The minimum tenure for a bank deposit varies depending on the type of investor. For retail individuals including senior citizens the minimum tenure for a bank fixed deposit is 15 days.
What Happens When An Individual Keeps a Bank Fixed Deposit For Such A Large Tenure?
The one thing that happens when you place an amount for such a large duration is that you lock interest rates for the period. Let's give you an example.
Say, if you place a deposit on March 19, 2015 for a period of 20 years at 8.5% interest rate. What happens if interest rates rise after 2 years and becomes 9.5%. You lose 1%.
But, there is a major benefit as well. After some years if the interest rate falls to 6%, you would benefit. In short locking money for large periods places you at a risk of rising and falling interest rates.
It's very rare that somebody would place deposits for such a large period, given the nature of risks that are involved these days.
Also remember there is TDS that would be cut on the deposit. Therefore, if you are investing small amounts, it would be best to invest in PPF, given that the interest on a PPF is tax free in the hands of investors.
How To Save TDS on Fixed Deposits?
It's always important to remember that as you invest for long periods you should take a few steps that would help you to save taxes.
Among these steps include the submission of Form 15G and Form 15H to the bank. This has to be submitted only if your income does not exceed the Income Tax limit.
Also remember that if you wish to save TDS on bank fixed deposit, please split the fixed deposit in two names. For example, an investor can split the fixed deposit amount with his wife.
But, it's important to remember that if both husband and wife have an income, the best way would be to pay the applicable taxes.
Please note that the bank will cut a TDS if your interest income exceeds Rs 10,000. Only recently, the Union Budget has said that TDS would now also be applicable to recurring bank deposits.
In any case please look at the pros and cons of investing either for a short trem of 15 days or a term as high as 20 years.
Following the middle path maybe the best option.