Before investing in a fixed deposit, it is important to think before deciding on a tenure
It would be advisable to invest in a small finance bank for higher interest
Fixed Deposit i.e. FD is a popular means of investment in our country. People consider it safe and they get a fixed return. But it is not advisable to invest in FD without thinking. Ignoring some essentials while doing FD can hurt you. So there are some things to keep in mind before investing money in FDs.
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You can get FD in private sector or small finance bank for more interest
Most banks (public sector banks) in the country offer interest rates of 5 to 6% on FDs. As well as the private sector i.e. small finance banks, you can get 7 to 7.5% annual interest by doing FD here. Here too your money will be as safe as a public sector bank. Here also the insurance facility is available up to Rs 5 lakh on the deposit amount. This means that in case of bank default, each customer will get a maximum insurance of Rs 5 lakh through DICGC.
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FD for how many years
Before investing in a fixed deposit, it is important to think before deciding on its tenure. This is because if the investor withdraws the amount before maturity, he will have to pay a penalty. FDs will have to pay a penalty of up to 1 per cent for breaking it before it matures. This may be less than the total interest earned on the deposit. So choosing a tenor without thinking can get you in trouble. Long-term FDs should be avoided in the lure of higher interest.
Not investing all the money in one FD
If you are planning to invest Rs 10 lakh in FD in one bank, instead invest in 9 FDs of Rs 1 lakh and 2 FDs of Rs 50,000 in more than one bank. This will allow you to manage the money by breaking the FD in the middle according to your need when you need money. The rest of your FD will be safe.
Tax
Interest earned on your fixed deposit is taxed as per the Income Tax Slab. If the interest earned on FD is more than Rs 10,000 in a financial year, TDS deduction is levied on it. It will be 10% of the total interest. For senior citizens, the limit is Rs 50,000. If your income is below the taxable range, you can submit Form 15G and Form 15H to the bank to avoid TDS deduction on FD.
Withdrawal of interest
The bank used to have the option to withdraw interest on quarterly and annual basis, now some banks can also do monthly withdrawals. You can choose it according to your need.
Also check the interest rate of the loan on FD
You can also take a loan on your FD. Under this you can take a loan up to 90% of the value of FD. Suppose your FD is worth Rs 1.5 lakh then you can get a loan of Rs 1 lakh 35 thousand. If you take a loan on FD, you will have to pay 1-2 per cent more interest on the fixed deposit. Suppose you are getting 4% interest on FD then you can get a loan at 5 to 6% interest. Which bank gives loan at what interest rate.
Bank Loan Interest Rate (%) Minimum Loan (Rupees) Maximum Loan
SBI FD Rate + 1%
Online: 25000
On the branch: no limit
Up to 90% of FD
Punjab National Bank FD Rate + 1%
Online: 25000
On the branch: no limit
Up to 95% of FD
Axis Bank FD rate + 2% up to 85% of 25000 FD
HDFC Bank FD Rate + 2% up to 90% of 25000 FD
Oriental Bank
FD rate + 1%
No limits
Up to 95% of FD
Federal bank FD rate + 2% no limit up to 95% of FD
Indian Bank
FD rate + 2% No limit up to 90% of FD
Bonding bank FD rate + 1.5-2%
No limits
Up to 90% of FD
Senior citizens get higher interest
Most banks offer up to 50% higher interest on FDs to senior citizens. In this case, if you have a senior citizen in your home, you can get more benefits by getting an FD in their name.
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