The current pandemic has taught the people the value of saving and investing their money for some unforeseen situation like this. There are 0ots of ways or verticals in which one can invest and get good return on investment. Still FD or Fixed Deposit is considered a safe investment for many. FD is a kind of traditional investment. People blindly trust on it for the safety of their money. However, many of them are not so aware about some point before investing in FD and thus end up earning less interest or regretting their choice of FD.
Here we are going to elaborate some tips which one should consider before investing in FD.
Tenure – one must check on minimum to maximum tenure before considering FD for investment. One must decide the duration of their FD carefully as there is a period of 7 days to 10 years. One should consider tenure as important aspect because premature closure of an FD attracts penalty that will reduce total interest rate earned on your deposit
If you are anticipating that there may be a need for money in the future for some unforeseen situation then you should make your deposit accordingly. For instance, if you think that you need money after 2 years then avoid investing for 5 years or longer years as premature closure at 2 years will lead to penalty or premature charges.
If you are uncertain about your financial needs in future then it is advisable that you park your money in multiple FDs with varying tenure. So that when you need funds in the future, you can choose according to their maturity date, so choose tenure in such a way that one matures approximately after 1 or 2 year and other matures around 5 years.
Interest – Every bank follows the interest rate as per RBI’s guidelines. However, banks can decide their interest rates, within the limit prescribed by RBI. Therefore, the interest rate offered on Fixed Deposit varies from bank to bank, but some are unknown that it also varies according to the tenure of the deposit.
If you want to get the best interest rates, refer to the entire interest rate chart offered by the bank on various tenure, you can visit directly to the branch or visit on their website. So many online tools like FD Interest Rate Calculator are available now-a-days that can help to compare interest rates for different tenure and also for different banks.
For instance, in ICICI Bank if you book FD for 11 months, the rate of interest is 6.25 % however, if you book it for 13 months, the interest rate is 6.50% Thus, by adding just 1 month to 1 year of FD the interest rate increases by 0.25%.
Tax Deduction at Source (TDS) – You might know that interest earned on FD or Fixed Deposit is subject to Income Tax. If the interest earned on the FD exceeds Rs. 40000 for an individual in one financial year then the entire interest earned becomes taxable and is subject to TDS deduction which means that when the interest exceeds Rs. 40000, the bank will deduct 10% of the interest earned and then credit the balance. Hence, it should be remembered that the TDS is deducted at the time of credit of interest and not when the FD matures. For instance, if you have FD for 3 years – banks shall deduct TDS at the end of each year.
If you are not falling under taxable income slab or if such interest income when added to your other income does not exceed the maximum amount and not chargeable tax, then you can submit the Form 15 G/H which is a declaration that your total income for the year is not under taxable income and so bank will not deduct the TDS on the interest earned when it exceeds Rs. 10,000.
Minimum to Maximum Deposit – Most banks have different minimum and maximum deposit amounts. It is advisable to check with the banks before investing and also choose the right amount which can be under your means.
For instance, Public Sector Banks including State Bank of India have a minimum deposit limit of Rs. 1000 for FD. However, private banks have a higher minimum deposit.
Loan Against Fixed Deposit – Investing in an FD gives a facility of loan that you can opt for. It is one of the best features you can take advantage of when you need funds without breaking FD or prematurely closing it. Generally banks offer up to 90% of your FD amount, as a loan However, the maximum tenure of your loan against your FD is restricted to the maximum tenure of your FD. The interest rate that banks charge on loan against your FD can be up to 2% over the fixed deposit interest rate.
These are some tips which will help you when you carefully consider before investing in FD. Right investment with the right time period will surely earn you desired interest and financial goals.
