Bank fixed deposits are a popular financial instrument among senior citizens and risk averse investors. Individuals can make best use of bank FDs when they have an emergency. One can block their money based on the availability. Most individuals do tend to have fixed deposits, but there are lesser known facts on where and when the fixed deposits can be used.
Here are some interesting features of Bank fixed deposits
1) Tax Saver FDs
Tax saving bank fixed deposits provide tax benefits under SEC 80C of the Income Tax Act. For a period of 5 years you cannot withdraw the money even in case of emergency. You can only withdraw the same on death of the first holder.
2) Loan against Bank FDs
Individuals can avail loan against their bank fixed deposits. Interest rates are usually higher by 2% to 3% higher than your bank fixed deposit rate. However, it varies from bank to bank. Consider your fixed deposit interest rate is 9%, your loan interest rate will around 11%-12%. Here, you are paying only 2%-3% more.
3) Credit Card against Bank FDs
Some banks are providing this facility to customers who will get instant credit card by opening a fixed deposit with bank.
For individuals who are desperate for credit card and fail to meet the eligibility criteria to avail a credit card, this can be a good option.
4) Recurring deposits
Individuals who are interested in saving monthly small amounts can opt for recurring deposits. The interest rate remains same the same as fixed deposits.
If you earn more than Rs 10,000 as interest income on your bank deposit, the bank will cut a tax deducted at source (TDS) on the deposit. So, if your income is less than Rs 2.5 lakh, one can consider submitting form 15g/h whichever is applicable to avoid TDS.
Bank fixed deposits makes senses for people in lower tax bracket and risk averse individuals. Individuals who are planning to open fixed deposits or have fixed deposits can make use of other features of bank fixed deposits.