Fixed deposits, mainly due to low risk and assured returns, represent one of the most favoured investment strategies in India. Consequently, those with unused capital in their bank accounts can participate in fixed deposit schemes and receive up to 8 per cent higher interest, roughly much higher than savings accounts if compared. Small finance banks are currently providing a higher interest rate of 6.60 per cent on 1 year FDs compared to the rates of commercial banks.
1 Year FD Rates
|Banks||ROI in % per annum for general public|
|Equitas Small Finance Bank||6.60|
|Ujjivan Small Finance Bank||6.50|
By saving up to Rs.1.5 lakh in a tax-saver fixed deposit account, you can reap the benefits of the income tax deduction clause under Section 80C of the Income Tax Act. That being said, you must remember that the account's interest income is completely taxable. For the financial year, the tax burden is totally contingent on the total income and your tax slab. The interest you receive from FDs falls under the classification 'Income from Other Sources'. Moreover, if the interest received surpasses Rs.40,000 in a financial year from all the accounts kept with the bank, banks subtract tax at source. In order to validate the specifics of the deduction, a TDS certificate will be provided.
Importance of FD on your personal finance
For those individuals who don't want to take the uncertainty, fixed deposit banks are an outstanding investment option. You should go for FD accounts if you want to retain the money over the years and are not searching for increasing wealth or if you are seeking for healthy returns. The capital is deposited in FD accounts by many pensioners, who have a lump sum stemming from retirement so that the monthly interest benefit from the investment can be used as regular expenses. For the benefit of your kids or minors, you should even put aside a lump sum, so they can use the amount for higher education at a later date. If you are trying to create an emergency fund, you must consider FD undoubtedly.
Tips to opt the best-fixed deposit scheme
Here are some significant considerations that should be considered by any FD investor to optimize good returns:
- For savers, the interest rate for a given tenure is of key significance. For various tenure preferences, some banks have high FD interest rates. You must first have a clear financial target in mind in order to pick the best possible FD scheme. You can check for a bank that offers the best FD interest rate in the tenure in which you can remain invested but only after considering your financial target.
- As described above, when determining the right fixed deposit plan, the duration you can deposit your money is a significant factor. Banks have fixed tenure deposits that range from 7 days to 10 years. Based on the financial purpose, you can still invest in a fixed deposit and pick the deposit tenure that fits your goal.
- A plethora of companies are currently paying higher FD interest rates, but some risk must be noted. Deposits are always recommended for scheduled banks and NBFCs that are approved by ICRA, CRISIL, and so on.
- And, you can choose company funds dependent on the credit scores on deposits issued if you choose to contribute towards Corporate Fixed Deposits. Company deposits with strong credit scores are deemed healthy (e.g. FAAA, FAA). These scores display a layer of safety with respect to the prompt payment of interest and principal.
- To verify and compare FD rates of different banks and the maturity amount you will earn on the maturity of your deposit you must go for a Fixed Deposit Calculator. By selecting your deposit amount, tenure, and the relevant fixed deposit rate you can determine your maturity amount. In this aspect, since they have an estimate of returns, individuals can manage their investments carefully.
- While deciding the right fixed deposit scheme, the payout alternative offered by your bank also serves a significant role, 2 types of fixed deposits are issued by banks in India, i.e. Cumulative and Non-Cumulative FDs. The FD interest will be compounded per quarter, half-year or year under a Cumulative FD Scheme, but will be paid at the completion of the deposit period. You will be paid per quarter, half-year or year under a Non-Cumulative FD Scheme, based on the payout level you have decided with. Mostly for senior citizens who want regular income for their retirement, it is ideally suggested. Alternatively, you must consider cumulative FDs for compounding interest rates if you're a salaried individual.