Fixed deposit Services in Hyderabad(FD) is a financial instrument provided by banks or NBFCs which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.
It may or may not require the creation of a separate account. It is known as a bond in the United Kingdom and India.
They are considered to be very safe investments. Term deposits in India are used to denote a larger class of investments with varying levels of liquidity.
Fixed deposits are a high-interest -yielding Term deposit and offered by banks in India. The most popular form of Term deposits are
Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Flexi Fixed Deposits (the latter is actually a combination of Demand deposit and Fixed deposit).
Interest rates on FDs
The rate of interest on FDs varies according to the maturity with longer deposits generally earning a higher interest rate. Note that FDs vary quite a bit from bank to bank so you should search around before investing.
To compensate for the low liquidity, FDs offer higher rates of interest than savings accounts. The longest permissible term for FDs is 10 years.
Generally, the longer the term of deposit, higher is the rate of interest but a bank may offer the lower rate of interest for a longer period if it expects interest rates, at which the Central Bank of a nation lends to banks (“repo rates”), will dip in the future.
Usually, in India, the interest on FDs is paid every three months from the date of the deposit. (e.g. if FD a/c was opened on 15th Feb., first interest installment would be paid on 15 May).
The interest is credited to the customers’ Savings bank account or sent to them by cheque. This is a Simple FD.
The customer may choose to have the interest reinvested in the FD account. In this case, the deposit is called the Cumulative FD or compound interest FD.
For such deposits, the interest is paid with the invested amount on maturity of the deposit at the end of the term.
Although banks can refuse to repay FDs before the expiry of the deposit, they generally don’t. This is known as a premature withdrawal. In such cases, interest is paid at the rate applicable at the time of withdrawal.
For example, a deposit is made for 5 years at 8% but is withdrawn after 2 years. If the rate applicable on the date of deposit for 2 years is 5 percent, the interest will be paid at 5 percent. Banks can charge a penalty for premature withdrawal.
Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract. This receipt is known as the Fixed Deposit Receipt (FDR) that has to be surrendered to the bank at the time of renewal or encashment.
Many banks offer the facility of automatic renewal of FDs where the customers to give new instructions for the matured deposit. On the date of maturity, such deposits are renewed for a similar term as that of the original deposit at the rate prevailing on the date of renewal.
Income tax regulations require that FD maturity proceeds exceeding Rs 20,000 not to be paid in cash. Repayment of such and larger deposits has to be either
by ” A/c payee ” crossed cheque in the name of the customer or by credit to the saving bank a/c or current a/c of the customer.
Nowadays, banks give the facility of Flexi or sweep in FD, wherein you can withdraw your money through ATM, through cheque or through funds transfer from your FD account.
In such case, whatever interest is accrued on the amount you have withdrawn will be credited to your savings account (the account that has been linked to your FD) and the balance amount will automatically be converted in your new FD.
This system helps you in getting your funds from your FD account at the times of emergency without wasting your time.
Benefits of FD
Customers can avail loans against FDs up to 80 to 90 percent of the value of deposits. The rate of interest on the loan could be 1 to 2 percent over the rate offered on the deposit.
Residents of India can open these accounts for a minimum of 3 months.
Tax is deducted by the banks on FDs if interest paid to a customer at any bank exceeds Rs. 10,000 in a financial year. This is applicable to both interests payable or reinvested per customer. This is called Tax deducted at Source and is presently fixed at 10% of the interest.
With CBS banks can tally FD holding of a customer across various branches and TDS is applied if interest exceeds Rs 10,000. Banks issue Form 16 An every quarter to the customer, as a receipt for Tax Deducted at Source.
However, tax on interest from fixed deposits is not 10%; it is applicable at the rate of tax slab of the deposit holder. If any tax on Fixed Deposit interest is due after TDS, the holder is expected to declare it in Income Tax returns and pay it by himself.
If the total income for a year does not fall within the overall taxable limits, customers can submit a Form 15 G (below 60 years of age) or Form 15 H (above 60 years of age) to the bank when starting the FD and at the start of every financial year to avoid TDS.
Majorly 5 things to know about fixed deposits
1. Interest paid either monthly or quarterly
The interest on a fixed deposit is usually paid out either monthly or quarterly depending on the option that the investor chooses.
So an individual investing Rs 1.5 lakh (Rs 150,000) in a one-year fixed deposit paying an interest of 8% per annum will get Rs 1,000 per month (8% of Rs 1.5 lakh divided by 12; or Rs 3,000 per quarter (8% of Rs 1.5 lakh divided by 4).
Other than this, those depositing money in a fixed deposit also has the reinvestment of interest option available.
2. The yield or return on a fixed deposit is different from interest.
An interest of 8% in a year would mean a return of 8.24% in a year for those individuals who opt for the reinvestment of interest option.
What this means is that Rs 100 invested at the beginning of the year will amount to Rs 108.24 by the end of the year.
This is because the interest earned is compounded every quarter.
An interest of 8% in a year would imply an interest of 2% in a quarter.
Hence Rs 100 invested by an individual would earn an interest of Rs 2 (2% of Rs 100) at the end of three months. So the Rs 100 investment made by an individual would have amounted to Rs 102 by the end of three months (Rs 100 + 2% of Rs 100).
Since this interest is reinvested, the individual earns 2% interest on Rs 102 for the next three months. The interest earned for the next three months is Rs 2.04.
This interest is also reinvested and the individual earns an interest of 2% on Rs 104.04 for the next three months.
Repeating this process at the end of the year, the individual has accumulated Rs 108.24 and hence a return of 8.24%, which is higher than the interest of 8%.
Given this individual putting money in a fixed deposit who do not need a regular income from the fixed deposit, it makes more sense for them to opt for the reinvestment of interest option and earn a greater return.
3. Want to break a fixed deposit? Careful
At times it might become necessary to break the fixed deposit either because the money is immediately required or for the fact that other banks have started offering a higher rate of interest on the deposit.
Breaking a fixed deposit has a cost attached to it.
Most banks, on premature withdrawal, give an interest which is 0.5% lower than the interest applicable for the period for which the deposit has remained with the bank.
Let’s try and understand this through an example.
An individual makes a three-year deposit, paying an interest of 9% per annum.
Due to an urgent need of money, he may have to break the deposit at the end of one year. The bank for a period of one year pays an interest of 8.5%. T
he individual will be paid an interest of 0.5% less than 8.5% which is 8%.
4. The interest earned on a fixed deposit is not tax-free
The interest earned from a fixed deposit gets added onto the income for the given year and is taxed according to the tax bracket that an individual falls into.
Hence, for those falling in the top tax bracket the interest earned from a fixed deposit is taxed at the rate of 33.99%.
5. It is possible to take loans against fixed deposits
This works out to be cheaper and involves less paperwork vis a vis taking a personal loan.
Fixed Deposit Services in Hyderabad