Fixed Deposit: A Safe Investment Bet For DepositorsJuly 30, 2019
With rising cost of living it has become imperative for people of all walks to life to invest a significant amount of their income towards savings. If you consider this practice as an investment vehicle, as an investor you stand a chance to make appreciable income on the invested amount. This concept of saving is used in Fixed Deposit scheme.
This is a low-risk, low-maintenance investment option offered by banks which lets investors make appreciable interest income. This income is based on the predetermined FD interest rates provided by the banks, NBFCs or HFCs to investors.
The interest rate majorly depends on the amount fixed, duration of the deposit and type of deposit. As per current rates, the highest rate on deposit with a tenure of less than a year is 7.75%. While, the highest interest rate on longest tenure of say 10 years is 9%. Thus, it can be said that interest rate are inversely proportional to the tenure of the deposit.
Additionally, you may use the FD calculator available online to evaluate returns. This is a simple tool which requires 3 major inputs to know which maturity amount meets your financial goals.
The process of using the calculator is pretty simple too. You just need to enter –
- Principal Amount
- Rate of Interest
- Tenure of the deposit to get the maturity value and interest amount earned
These three values are a major deciding factor for ROI of an FD. While, interest rates on the deposit vary from bank to bank. They also depend on the maturity period (where it is observed that 1-3 years of term deposits usually offer higher rate of interest). The interest is thus compounded quarterly (every 3 months) by most banks.
Further, it is advised not to break the FD before its maturity period. As doing so may have you pay some penalty charges and get its interest rate reduced. However, you may still find banks offering FD with premature withdrawal which match your financial requirements.
The bottom line is that fixed deposit is an investment ideal for conservative investors. They are secure, offering predictable returns. But, the FD can attract TDS on its interest income. These taxes are calculated as per the tax bracket of the individual. In order to get tax exemption, investors can submit various forms such as Form 15G, Form 15H to the bank and continue to accumulate wealth.