Bank Fixed Deposit is one of the favoured investment avenues for many individuals. The span of the FD can range from 7 days to 10 years. Banks give separate receipts for each FD since each deposit is regarded as a separate instrument. Bank Fixed Deposits provide assured returns and you can receive interest income on a monthly, quarterly, or annual basis.
In a cumulative FD, interest earned is periodically reinvested in the principal amount, which earns you more returns. As you earn interest on the interest earned throughout the financial year, your income will be higher.
Why bank fixed deposits are considered as safe?
Bank Fixed Deposit is the safest financial product because deposits up to Rs 5 lac are covered by insurance, including principal and interest.
For example, if an individual had a principal account of 4,94,000 plus accrued interest of 5,000, the total amount insured by the DICGC would be 4,99,000. If, however, the principal amount in that account was Rs 5,00,000 the interest part will not be covered as it will be above the insurance limit per bank.
Tax on Fixed Deposit
Earnings on bank deposit interest attract tax in the form of Tax Deducted at Source (TDS). Prior to paying the interest to the receiver, the banker deducts TDS from the interest on deposits.
If the total interest on such deposits exceeds Rs 40,000 per year per bank branch per individual, TDS is levied on bank deposits. (Rs 50,000 in the case of an elderly person). If you fall below the tax slab and apply Form 15G or 15H to the bank to claim TDS-free income, TDS will not be deducted from the bank.
Things to consider before opting for a Bank FD:
- Interest rate offered
- Loan against FD
- Premature withdrawal rules
- Interest Payout Frequency
- Senior Citizen Offer
- Type of Fixed Deposit
List of banks offering the highest interest rates on Fds, for a deposit up to Rs 1 crore.
|6 months- 1 year(%)||1-2 years(%)||2-3 years(%)||3-5 years(%)||5 years and above(%)||Senior Citizen(%)|
|Karur Vysya Bank||4.75-5||5.5||5.5||5.65||5.65-6||6-6.15|
|Union Bank of India||4.30-4.50||5.25-5.30||5.30-5.50||5.50-5.55||5.55-5.60||3.50-6.10|
|South Indian Bank||5||5.4||5.4||5.5||5.5||5.50-6|