Fixed Deposit

Fixed DepositA bank deposit is also known as fixed or term deposit, which can be opened by account holder to earn better interest compared to the interest that the account balance earns in a savings bank account. This is a type of instrument in which a certain sum of money is placed with the bank for a specified time period at a fixed interest rate.

The interest rate offered by banks on such deposits depends on the number of days, weeks or months for which the deposit is maintained. There is great flexibility in the maturity period which ranges from 15 days to 10 years. The interest is higher in case of longer maturity periods and can be compounded quarterly, half-yearly or annually and varies across banks. The main draw for such deposits is guaranteed higher interest that deposits earn.

Capital Protection

The capital in a bank deposit is not fully protected. Till recently, all bank deposits were insured under the Deposit Insurance and Credit Guarantee Scheme of India, which now have been made optional exposing the deposits to risks if the bank is not insuring deposits.

Inflation Protection

The deposit is not inflation protected, which means whenever inflation is above the deposit interest rate; the deposit earns no real returns.  However, when the interest rate is higher than inflation rate,  it does manage a positive real rate of return.

Guarantees

The interest rate is fixed and guaranteed for the duration of the deposit at the commencement of the deposit.

Liquidity

The bank deposit is liquid, despite the lock-in during the tenure of the deposit. The liquidity is offered in the form of loans and withdrawals subject conditions.

Credit Rating

Bank deposits do not carry any credit rating.

Exit Option

Early closure of a deposit is permitted with a penalty.

Other risks

  • Interest rate changes pose risks to existing deposit holders; for instance, you may have locked-in at a lower interest rate but due to economic factors; the bank starts to offer a higher rate on deposits later.
  • If the bank where you have the deposit does not have deposit insurance and credit guarantee, you run the risk of losing the capital and the interest.

Tax Implications

The amount invested in deposits with a maturity period of 5 years in a scheduled bank is eligible for tax deduction under section 80C. However, the interest earned on the deposit is taxable.

Various Types of Bank Fixed Deposits

Fixed Deposit

  • In this type of deposit both tenure and the interest rate for the tenure is fixed.

Recurring Deposit

  • In this type of deposit, bank account holders deposit equal amount of money every month.
  • The interest rate is fixed for the deposit tenure and so is the number of monthly instalments.

Security Deposit

  • A few corporate organizations stipulate new employees to provide security deposit to check attrition.
  • This deposit is made by an employee and he cannot withdraw such fixed deposits without the consent of the employer.
  • The company has the right to the FD in the event of employee leaving the organization before certain stipulated period.

Tax-saver Fixed Deposit

  • Deposit with 5-year lock-in offer tax benefits under Section 80C.

Where to open a Deposit

You can open a deposit at any nationalized, private sector or foreign bank.

How to Open a Deposit

  • Select the bank to open the deposit.
  • Choose a nominee and get a witness signature.
  • Your existing bank account counts as being KYC compliant.

How to Operate Deposit

  • You can issue cheque to the bank through your existing savings bank account to start a deposit.
  • A deposit receipt or certificate is issued detailing the deposits features

Types of Transaction

  • Cheque
  • Money Transfer
  • Electronic Clearing Services {ECS}

Points to Ponder

  • Minimum sum to start a deposit
  • Penal provisions in case of partial or early foreclosure

Fixed Deposit Interest Rates of Various Banks in Percentage

Bank

6 Months-365 days

1-2 Years

2-3 Years

3-5 Years

Above 5 Years

Axis

7.50

8.50-8.75

8.75

8.75

8.50

Bank of Baroda

7.30-7.75

8.50-8.75

8.75

8.75-8.90

8.75

Bank of India

8.00

9.00

9.00

9.00

8.75-9.00

Bank of Maharashtra

7.50-8.50

9.00-9.10

9.00

9.00-9.10

9.00

Canara Bank

7.25-9.00

9.05

9.05

9.05

9.05

Central Bank of India

7.75

9.00-9.15

8.75

8.50

8.50

Corporation Bank

8.75-9.00

9.00

9.00

9.00

8.75

Dena Bank

8.50

9.00

8.75-9.25

9.00

8.75-9.00

Hdfc Bank

7.50-8.00

9.00-8.75

8.75

8.75

8.25

Icici Bank

7.00-7.25

7.50-9.00

8.75

8.75

8.50

Idbi Bank

8.65-8.75

8.75-9.00

9.00

9.00

8.50-8.75

Iob

8.50

9.00

9.00

9.00

9.00

Ing Vysya

8.70

9.25

9.25

9.00

8.50

State Bank of India

6.50

8.75

8.75

8.75

8.75

Syndicate Bank

7.75-8.00

8.50-9.00

8.00

8.00

8.00

Vijaya Bank

8.50

9.00

9.00

9.00

9.00

Features:

ELIGIBILITY

You need to be a Resident Indian with a savings bank account.

ENTRY AGE

  • You need to be over 18 years old
  • Minors can open a deposit with the natural guardian operating it

MINIMUM INVESTMENT [Rs]

  • Minimum: Rs. 1,000/-
  • Maximum: There was no upper limit
  • Deposits above Rs. 15 lakh upto Rs. 1 Crore qualify for special interest rates

INTEREST

  • Starts from 7.05 percent to 9.00 percent per annum
  • Depends on the tenure of the deposit and RBi changes {See table for Current Rates}

TENURE

  • Currently offered  up to 10 years

ACCOUNT HOLDING

  • Individual
  • Joint
  • Minor through guardian
  • Companies or Associations or Trust
  • Hindu Undivided Families [HUF] not engaged in any trading business activity

NOMINATION

  • Facility is available

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