A Fixed Deposit (FD), also known as a term deposit or time deposit, is a low-risk financial instrument offered by banks, post offices, or NBFCs (Non-Banking Financial Companies). It allows you to earn a fixed interest rate on your investment for a specific tenure, providing security and stable returns. Here's a breakdown:

Key Features of Fixed Deposits

• Definition:
• A secure investment option offering fixed returns over a predefined period.

• Ideal for conservative investors seeking assured growth.

• Safety:

• Deposits up to ?5,00,000 are insured under the DICGC (Deposit Insurance and Credit Guarantee Corporation).

• NBFC deposits do not have DICGC insurance but are evaluated based on credit ratings.

• Interest Rates:

• Typically range from 2.25% to 6.80% depending on tenure and financial institution.

• Tenure:

• Flexible options from 7 days to 10 years.

• Loan Against FD:

• Loan facility available up to 90% of FD value at slightly higher interest rates.

• Penalty for Premature Withdrawal:

• Reduction in interest rate or direct penalties may apply.

Types of Fixed Deposits

• Regular FD:
• Flexible tenures (7 days to 10 years).

• Interest can be cumulative (paid at maturity) or non-cumulative (paid monthly, quarterly, or yearly).

• Tax-Saving FD:

• Offers tax deductions under Section 80C (up to1.50 lakh).

• 5-year lock-in period with a lump sum deposit.

• Senior Citizens FD:

• Higher interest rates for individuals aged 60+.

• Flexi FD:

• Combines savings account and FD features with auto-sweep functionality.

Eligibility Criteria for Fixed Deposits

• Individual depositors aged 18+ with a PAN card.
• Hindu Undivided Families (HUFs).
• Minors under a guardian.
• Must meet KYC requirements with valid ID, address, and signature proofs.

Advantages of FD Investments

• Risk-Free: Guaranteed returns.
• Flexible Tenures: Ranges from short-term to long-term.
• Tax Benefits: Tax-saving FDs provide deductions under Section 80C.
• Liquidity: Can be prematurely withdrawn in emergencies (with penalties).

FD Tax Implications

• Tax on Interest:
• Interest is taxable as per your income tax slab.

• TDS is deducted if interest exceeds40,000/year (?50,000 for senior citizens).

• Tax-Saving FD:

• Eligible for ?1.50 lakh tax deduction under Section 80C.
• Interest earned is still taxable.

Comparing FD Options

| Features | Bank FD | NBFC FD | Corporate FD |
|-------------------------|--------------------------|------------------------|------------------------|
| Safety | High | Moderate | Moderate |
| Credit Rating | Not Required | Mandatory | Mandatory |
| Interest Rates | Moderate | Higher | Higher |
| Tenure | 7 Days to 10 Years | 1–5 Years | 1–5 Years |
| DICGC Insurance | Yes (up to5,00,000) | No | No |

Frequently Asked Questions (FAQs)

• Can I withdraw money before FD maturity?
  Yes, but premature withdrawal may incur penalties or reduced interest.

• What happens if I break an FD early?
  You may lose some interest, and a penalty may apply.

• Can I take a loan against FD?
  Yes, up to 90% of FD value, at interest rates 0.5%-2% higher than the FD rate.

• What is a tax-saving FD?

• A 5-year fixed deposit eligible for ?1.50 lakh tax deduction under Section 80C.

• Cannot be prematurely withdrawn.

• Is the FD renewal process automatic?
  You can opt for auto-renewal or manually renew at the prevailing interest rate.

• Are FDs suitable for senior citizens?
  Yes, as they offer 0.25%-1% higher interest rates for seniors.

Summing it up

Fixed Deposits are a secure, flexible, and low-risk investment option ideal for individuals seeking stability in returns. Whether you’re saving for short-term goals, building an emergency fund, or looking for tax-saving opportunities, an FD can be a reliable choice.

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