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Overview of Fixed Deposit

What is Fixed Deposit?
Fixed deposit (FD) is a financial instrument where a sum of money given to a bank, financial institution or company
whereby the receiving entity pays interest at a specified percentage for the time duration of the deposit. The rate of
interest paid for fixed deposit vary according to amount, period and from bank to bank. At the end of the time period
of the deposit the amount that is originally given is returned to the investor.

Features of Fixed Deposit Account

The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on
their surplus funds (extra money).
The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The
deposit can be renewed for a further period.
As per the Traditional scheme, the interest on the FD account is credited to the Savings account specified by
the depositor on a monthly basis or on a quarterly basis. For the Reinvestment scheme, the interest is
compounded to the principal amount on a quarterly basis.
Tax is deducted at source, from the interest on Fixed Deposits, as applicable, as per the Income Tax Act,

Duration of Fixed Deposit
Fixed deposit can be opened for a minimum period of 7 days to maximum of 10 years.

Eligibility for Fixed Deposit
All Resident individuals (Including Minors) and HUF are eligible to open a fixed deposit account

Compound Interest and Impact of Compounding frequency
Compound interest arises when interest is added to the principal so that from that moment on, the interest that has
been added also itself earns interest. This addition of interest to the principal is called compounding.
The following formula gives you the total amount one will get if compounding is done:-

A = Final Amount that will be received
P = Principal Amount (i. e. initial investment)
r = Annual nominal interest rate (as a decimal i. e. if interest is paid at 5. 5% pa, then it will be 0. 055) (it should not
be in percentage)
n = number of times the interest is compounded per year (i. e. for monthly compounding n will be 12, for half year
compounding it will be 2 and for quarter it will be 4
t = number of years

now it is being credited each week. this time the impact is not as dramatic as might be expected. Thus. Use our Fixed Deposit Rate Comparator to get the best FD rate for other deposit amounts. we earn it daily. 4. Weekly Compounding: As should be expected. Compare and Get Best Fixed Deposit Interest Rates in India Below table (Updated on: 22-05-2015) contains best rates for Rs. Interest earned each month is added to the balance and is itself available to earn interest in each succeeding month. Continuous Compounding: Interest that is. Whereas before we had to wait until the end of the month before the interest was 'added back to the pot'. the effective rate is equal to the nominal rate) 2. As expected the. The result is the maximum effect that compounding frequency can exert on a given interest rate and term. all we have is simple interest (i.50% Get State Bank Of H 30 days 7. Monthly Compounding: In this case there are 12 compounding periods. However. Annual Compounding: In this case there is no compounding effect because the term is only one year. the same as the compounding frequency. e.50% Get Syndicate B State Bank Of Hyderabad Syndicate Bank . hypothetically. but continuous compounding is well-defined nevertheless as the upper bound of "regular" compound interest. That it does so should be intuitive: more interest is available sooner to earn more interest. the future value is greater than the amount calculated using annual compounding. This is not actually possible. a for 1 Lac 30 days 7.Check FD rates Now » Bank Period Interest % p. . the impact of the interest rate is magnified.increasing the frequency of the compounding period increases the impact of the interest rate.1. Thus. 3. computed and added to the balance of an account every instant. Daily Compounding: Now instead of earning interest weekly. 5. 1 lakh deposit.

75% Get Indian Ba 1 Year 9.50% Get Tamilnad Mercan 6 months 8.50% Get DHFL 1 Year 6 Months 9.50% Get Tamilnad Mercan 60 days 8.00% Get Tamilnad Mercan 120 days 8.75% Get DHFL 3 Years 9.30 days 7.00% Get Tamilnad Mercan 90 days 8.80% Get Shriram Fin 5 Years 9. Auto-renewal: Deposit-tenor remains unchanged but interest depends on rates prevailing at renewal.50% Get Tamilnad Mercan 9 Months 8.80% Get Shriram Fin 4 Years 9. Withdrawal - .80% Get Shriram Fin Tamilnad Mercantile Bank Tamilnad Mercantile Bank Tamilnad Mercantile Bank Tamilnad Mercantile Bank Tamilnad Mercantile Bank Indian Bank DHFL Mahindra Finance DHFL Shriram Finance Shriram Finance Shriram Finance Renewals and Withdrawals of Fixed Deposits:  o o  Renewal Rolling over of deposits for another term wherein tenor can differ.25% Get Mahindra Fi 2 Year 9.

Up to two people allowed as nominees. for the period for which the deposit has remained with the Bank. on the applicable rate.Partial withdrawal is permitted in units of Rs 1. o o About Nominees of Fixed Deposits:          Nominee: Person entitled to receive funds accrued in a particular FD upon depositor’s death. interest will be paid at the rate applicable on the date of deposit.20. o Sweep-In facility / Flexi-Deposits: Withdrawals allowed on interest accrued on an FD. legal guardian’s details (for minors). relationship. the Bank will levy a penalty of 1%.e. Amounts above Rs. will allow withdrawal of term deposit before completion of the period of the deposit as per terms agreed upon at the time of placing the deposit. Loan against Fixed Deposit . Without a nominee.For such premature withdrawals and partial withdrawals. Money so received will have to be transferred the legal heirs (if different from the nominee) Nominations can be effected for FD accounts held in an individual or joint capacity with an “either or survivor” instruction. The balance amount earns the original rate of interest. o Tax-saving deposits: No withdrawals allowed for 5 years minimum  Either of the two are executed based on the account-holder’s instructions without which the deposit will be automatically renewed. The balance is then held as a new deposit.  Fixed Deposit Receipt (FDR) has to be surrendered upon renewal or withdrawal. 5-1% lower interest on customers looking to close their Fixed Deposit In the event of the FD being closed before completing the original term of the deposit.20. nominations are done by legal operators of the account. Many people want to close their old Fixed Deposit account before maturity and open a new account when they see the current interest rates on fixed deposits in the market much higher than rate of interest at which they have opened FD sometime back.000 have to be transferred to the customers savings account or current account or paid-out through a crossed cheque. This may be necessary if you urgently require the funds or if there are better investment opportunities elsewhere. Nominees are named for every individual deposit. money accrued in the FD will not be automatically transferred to the account-holder’s next of kin or legal heirs. Premature withdrawal of Fixed Deposit Premature withdrawal or Breaking a fixed deposit means withdrawing the money before the maturity expires. Partial withdrawal of Fixed Deposit The Bank on request from the depositor.000. with premature closure penalty. address. Nominees are legally trustees of fixed deposit funds.000 can be withdrawn in cash. Nominations can be changed or cancelled subject to the account-holder(s) consent For FDs held by minors. age. Most of the banks charge premature withdrawal penalty in the form of a 0. premature withdrawal subject to penalty Partial withdrawals (prematurely) o Amounts up to Rs. Nominee details required: Name. Proof of depositor’s death required to claim funds.Encashment of deposits at maturity Encashment prior to maturity i.

If you are in the 30% income tax slab and have a fixed deposit that gives you 9% interest. Only the principal invested can be claimed as deduction U/S 80C. Once again. The Fixed Deposit Receipt issued when investing is required to claim said deduction. deduction can be claimed by the primary holder only.the interest earned through FD is taxable in line with an individual’s tax slab. having a working knowledge of how taxes work in terms of an FD helps you stay on top of things. the same FD is taxed on an accrual basis. Interest rates are determined by the bank offering this product. meaning revenue is recognized when earned and expenses are recognized when incurred. If the deposit is encashed before maturity.100. this detail ensures that your returns from FD investments is actually lower than expected. ignore a crucial detail when it comes to Fixed Deposits. You will have to pay the corresponding tax at the end of the financial year. Thus.1 lakh). Premature withdrawal is not allowed. The amount invested in these FDs qualify for deductions U/S 80C of the Income Tax Act. 2006 this amount was limited to Rs.5% above the interest paid by the bank on the deposit. Remember that interest on fixed deposits are calculated annually or on a cumulative basis. Income Tax on Fixed Deposits Traditionally. Fixed Deposits (FD) have been seen as a secure and profitable medium of investment. especially investors in the higher tax brackets. Most of the banks allow a loan in the range of 70-90% of the deposit amount. effected as of Nov. Consequently. Interest rate charged on the loan given on a fixed deposit is usually 2-2. The maximum amount allowed as deduction is Rs. it varies from bank to bank. In case of joint-holdings. Money invested in these FDs is locked-in for at least 5 years. They are usually in line with other deposits of similar tenures. However. The minimum deposit amount is Rs. it must be displayed on your IT returns. Interest earned can either be paid-out or reinvested/compounded. It varies from bank to bank and also upon the amount deposited. Some banks even offer more than this range. TDS is charged @10% on the interest earned during a financial year and thereafter according to the deposit-holders applicable tax-bracket. the actual interest passed down to you after the tax cuts is just 6%. the timeline on reception of the interest on your FD isn’t a factor for tax to be imposed upon it. It is given in the form of an overdraft against your deposited amount.1. you will continue to earn interest on the deposit though you have availed a loan against it. Loan against fixed deposit is a great option for those looking to avail a loan at a better rate when compared to personal loans where interest rates range from 14-30% p. Interest earned under this scheme is taxable. However. For example.In order to access funds at a short interval.13. Moreover. (Under the Bank Term Deposit Scheme. This is the minimum time-requirement to qualify for the deduction. the amounts held under this scheme do not qualify for deductions. 2014.1961. many people. Thus. .a. and even in situations when the interest isn’t taxable. This is an alternative given to customer by bank instead of breaking the deposit prematurely. There is no standard on the amount of loan that can be sanctioned. Tax-saver Fixed Deposit Tax-saver FDs are popular instruments for saving on taxes. This is as per changes in the law.5 lakhs. one can avail a loan against fixed deposits held with the bank.

or manage credit more responsibly. a Non-Resident External (NRE) Rupee Accounts are maintained by non-resident Indians (NRI) in Indian Rupees and are meant for foreign exchange that is earned in their country of residence and then transferred to India. those who have poor credit scores. salary etc.  Secured: Against the FD held with the issuing bank. Currently. banks offer secured credit cards i.80. Alternatively. E.e.000. The interest earned from such accounts is taxable as per the Indian income tax regulations. Credit Card against Fixed Deposit In order to improve credit scores. credit limit of 80% for a FD of Rs. those who are not creditworthy. Vs.000 = Rs. defaults on payments etc. from such sources as house rent. regular credit cards In case of payment defaults: Banks can make recoveries from the fixed deposit if dues are not cleared on secured cards. dividend and interests.  Interest Rates: Usually lower than that of regular credit cards.e. . to keep funds that belonged to them before they turned NRI. These accounts can also be used to account for fresh earnings in Indian Rupees even after the individual has turned an NRI. bad histories of managing debt. e. Indian banks offer an interest rate from 7-10% on fixed accounts that fulfil the NRE parameters.g.g. It can go up to 100% in some cases. Currently.Fixed Deposits for NRO/NRI Non-Resident Ordinary (NRO) Rupee Accounts are maintained by non-resident Indians (NRI) in Indian Rupees.00. payment for which will be fulfilled at a later date. Indian banks offer an interest rate from 8-10% on fixed accounts that fulfil the NRO parameters. Secured Credit Cards allow cardholders can make spends. Credit cards are usually not given to risky customers i. Debit Cards Debit cards require the cardholder to maintain adequate funds in his/her account prior to using the card. Key features: Credit Limit: Fixed at a percentage of the amount held as FD. The interest earned from such accounts is tax free and the funds can be moved around to other accounts without any restrictions. credit cards issued against a fixed deposit (FD) held with the issuing bank.1. Regular credit cards are unsecured and unpaid dues can either be written off or recovered through legal recourse.  Credit cards issued against an FD Vs.  Validity: Usually in line with the tenure of the FD to which it is linked. poor track records of paying dues.