Fixed deposits are safer than equities and offer a better return. Fixed deposits offer guaranteed returns, and can be liquidated quickly in times of crisis. Bank deposits are used as a hedge against market declines. This is why you should have 1% of your savings dedicated to them.
You need to know the following bank rules before you choose fixed deposit investment mode:
- Banks will vary the fixed deposit rates for your deposit. Senior citizens have some advantages, however, such as higher interest rates.
- Banks will have different minimum and maximum terms and deposit amounts. It is best to speak to bank staff before depositing any amount. A fixed deposit usually has a tenure of 7 days to 10 years. Rates of interest can vary between 4% and 10%.
- A regular fixed deposit can be canceled before it reaches maturity and money can be withdrawn prematurely. A tax-saving fixed deposit requires a minimum lock-in period of five years. Some banks charge penalties for premature closing fixed deposit accounts, while others waive these fees or offer lower interest rates if conditions are met.
- Some banks allow partial withdrawals without penalty. Some banks will penalize partial withdrawals. It is wise to not place all your money in one fixed account. You should keep one or two small deposits in addition to your usual fixed deposit that can be withdrawn in an emergency.
- Fixed deposit loans can be used to obtain loans. The amount of the loan granted will depend on the bank. You will usually get a loan for 70% of your fixed deposit amount.
- You have the option to invest upto 1.5 lacs in tax-saving fixed deposits. This can be deducted from your income. This type of fixed deposit has a 5-year lock-in and you cannot withdraw early. Loan facility is also not available.
What tax rules apply to fixed deposits in banks?
- Section 80C provides that income earned as interest from fixed deposits is subject to tax. If all interest income from deposits exceeds 10,000 rupees, banks will need to deduct 10% tax at source (TDS).
Notification: Banks have the right to deduct 20% from your TDS if you don’t provide your PAN information.
- You cannot distribute your fixed deposits to different branches of the same bank or other banks. To check the interest income, the bank adds all fixed deposits in the branches that are in your name. The TDS on term deposits is now at the bank level and not at branch level. Your PAN number will allow you to see your fixed deposits at any bank in the country.
- Even if TDS has been deducted by the bank, your tax return file must include interest income.
- If form 15G/15H is completed along with the PAN number these individuals are exempt from TDS. However, individual income for that year will be exempted.
Fixed deposits provide such great opportunities, so it makes sense to put some of your savings into them to secure your future.