What is Fixed Deposit – Best FD Interest Rates, Calculations and How to Apply Online
Fixed deposits (FDs) are known to offer guaranteed returns – one of the reasons why they are so popular among risk-averse investors. FD interest rates can range anywhere between 2.50% to 8.50% based on tenure and scheme. Also, most banks offer preferential rates to senior citizens, which is 0.25% to 0.75% higher than the standard fixed deposit rate. The FD tenure usually ranges from 7 days to 10 years.
This blog will give you an overview of fixed deposits, its benefits, working and much more. Let’s dive in!
What is a Fixed Deposit?
A fixed deposit is a type of deposit account offered by banks and other financial institutions that allows investors to earn a higher interest rate than a regular savings account for a specific period of time. The interest rate on a fixed deposit is determined by the bank and is based on various factors, such as the amount of the deposit, the duration of the deposit, and prevailing market conditions. Once the fixed deposit matures, you can withdraw the principal amount plus the interest earned or renew the deposit for another term. predetermined maturity date.
To understand better, here are a few details you should know about fixed deposits.
Fixed Deposit Details
| Minimum Investment | Rs.1000 |
| Maximum Investment | No Upper Limit |
| Interest Rate | 2.50% to 8.5% |
| Types of FDs | Regular FDs, Senior-citizen FDs, Non-Callable FDs, Flexi FDs, Special FDs, Corporate FDs , NRI Fds, etc. |
| Also known as | Term Deposits |
| Premature Withdrawal | Allowed for regular FDs with a penalty on interest rate |
| Secure Investment | Guaranteed Returns |
How Does Fixed Deposits Work?
You can consider investing in FDs similar to lending money to a bank or financial institution. When you invest a sum in FD for a fixed period, the bank guarantees you to return the sum of money along with the specified interest after the maturity period is over. Unlike recurring deposits, where there’s flexibility to withdraw money before maturity period, premature withdrawal for FDs could come with a penalty fee.
However, there are banks who don’t charge any fee for premature withdrawal. Also, certain banks also offer loans against fixed deposits. But try not to go for premature withdrawal so that you don’t lose out on the interest earned after maturity.
Types of Fixed Deposits
Here are the types of FDs available:
1. Standard FDs
Investors deposit money in their FD accounts for a fixed period that can range anywhere between 7 days and 10 years. Fixed and predefined interest rates are higher than interest rates on regular savings accounts. Credit and overdraft features are available for standard FDs. You can withdraw money before your account expires, but you will be penalised.
2. Tax-Saving FDs
These FDs have a lock-in period of 5 years, meaning you cannot withdraw or break your FD before the tenure (5 years) ends. However, tax-saving FDs let you claim tax exemption of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
3. Cumulative FDs
Cumulative FDs would pay you the principal and interest at the time of maturity. The interest gets reinvested every year, meaning you would receive a lump sum amount at the end of the tenure instead of getting regular payouts. You get to benefit from the power of compounding with cumulative FDs.
4. Non-Cumulative FDs
With these FDs, you can choose the interest payments – monthly, quarterly, half-yearly or annually – based on your needs. It is suitable for those who are looking for a regular source of income. However, with non-cumulative FDs, you won’t be able to reap the benefits of the power of compounding,thereby losing out on earning interest over interest.
5. Senior Citizen FDs
These are for people over the age of 60. They offer better interest rates than normal FDs, usually 0.25% to 0.75% more than normal FD interest rates.
6. Flexi FDs
These FDs provide the convenience and flexibility of both FDs and savings accounts. They combine the features and benefits of FD and savings accounts to provide FD’s higher interest rates (compared to savings account) and savings account liquidity.
Also Read
Features of Fixed Deposit
1. Tenure
The tenure of fixed deposits is predetermined and can range from a short duration of a few days to a longer term of several years, allowing depositors to select the tenure that aligns with their financial objectives and needs.
2. Interest Rate
Provide a predetermined interest rate that remains unchanged throughout the entire duration of the deposit.
3. Interest Payment Frequency
The interest accrued on fixed deposits can be disbursed at varying intervals, such as monthly, quarterly, semi-annually, or upon maturity. The depositor has the flexibility to select the frequency of interest payments based on their personal choice.
4. Deposit Amount
Fixed deposits necessitate a minimum deposit threshold, which may differ among financial institutions. Depositors have the option to deposit a lump sum amount or make periodic deposits through a recurring deposit, based on their preference.
5. Premature Withdrawal
Typically, fixed deposits come with a specified lock-in period during which early withdrawal may not be permitted, or may result in penalties. However, some fixed deposits may provide the option of premature withdrawal, subject to certain conditions and penalties.
Benefits of Fixed Deposit (FD)
Here are some of the benefits of fixed deposits:
1. Low-Risk Investment
FD is considered one of the safest investment options in the market when compared to other investment options like mutual funds, stocks, bonds, etc. FDs offer fixed interest rates over a specified period that do not fluctuate with market conditions.
2. Guaranteed Returns
FDs are the only investment vehicle that offer guaranteed returns. The interest rate is fixed throughout the tenure and you get to enjoy assured returns after the maturity period.
3. Easy Investing
Opening an FD account with financial institutions is a breeze. You can open an FD account online and offline. To open an FD account online, all you need to do is select the amount you want to deposit and the tenure.
4. Power of Compounding
Customers can reinvest the amount of FD for a selected period. In this context, compound interest means receiving interest not only on the amount of capital but also on the interest earned.
5. Easy Reinvestment
When a savings account expires, the customer can instruct the bank to credit the amount or reinvest the amount for another specific time period.
6. Tax Benefits
You can opt for tax saver FDs which usually come with a lock-in period of 5 years, meaning you cannot withdraw the amount before the end of the 5-year tenure. You can claim a maximum income tax deduction of Rs.1.5 lakh under Section 80C of the income tax act with tax-saver FDs.
7. Loans Against FD
Certain financial institutions also offer loans against FDs. Let’s say you have Rs.20 lakh in your FD account and you need Rs.5 lakh urgently. In such a situation, you can ask your bank to give you a loan against your fixed deposit. For loan against FD repayment, banks generally offer flexible repayment tenures. However, there’s one critical term and condition attached i.e., the loan tenure should not exceed the FD tenure held with the bank.
8. Higher Interest Rate for Senior Citizens
Banks offer higher interest rates to senior citizens, usually above 0.25% – 0.75% of the normal FD rate, to senior citizens. This could be a viable investment option for senior citizens looking to earn interest on their savings after retirement.
How to Open a Fixed Deposit Account?
Investors can open FD accounts both offline and online:
1. Online Process
The procedure for opening a savings account varies from bank to bank. Different banks have different options. However, most banks or NBFCs follow the pattern mentioned below:
- Step 1
Log in to your bank’s net banking
- Step 2
Select the Open FD Account option and provide the necessary details (principal, tenure, etc.)
- Step 3
Select the branch, enter tenure and amount, appoint a nominee, click continue and then confirm
- Step 4
Download the receipt for later reference
Note that the process may vary from bank to bank.
2. Offline Process
Investors can open an FD account at any bank of their choice, regardless of whether they are existing account holders. Opening a savings account offline, with or without an existing account, is more or less the same. The first step is to access the branch. The next step is as follows:
1. For existing accounts
Step 1: Visit your nearest bank branch where you already have any account
Step 2: Collect FD form and fill out the details
Step 3: Once you submit the form, a bank executive would help you to proceed further
2. For new account
If you don’t have an account with the bank where you’re planning to open your FD account, you would need to open a savings account first. However, some financial institutions allow you to open an FD account without a savings account. In such cases, you would need to complete the e-KYC process to proceed further.
Documents Required for Opening an FD Account
Customers who already have a savings account at one of the banks do not need to resubmit their documents to meet the FD eligibility criteria. The documents submitted during account opening are sufficient. The following is a document list required to open an FD account.
1. Proof of identity
- Passport
- PAN card
- Voter card
- Driver’s license
- Government ID
- Ration card
- Senior citizen ID card
2. Proof of address
- Passport
- Phone bill
- Electricity bill
- Bank statements
Eligibility Criteria to Open an FD Account
You may need to meet the following eligibility criteria to open an FD account:
- Nationality: Resident Indian or NRI
- Age: 18 years or above (minors are also eligible provided they are accompanied by a legal guardian)
- Type of Employment: Salaried and self-employed
Also Read
Fixed Deposit Interest Rate
Fixed deposit interest rates vary from bank to bank. Here is how one can calculate interest on FD amount.
How to Calculate the Interest on FD Amount?
The FD interest arrives from the following formula:
Interest = P + (P x r x t / 100)
Where,
- P is the principal
- r is the annual interest rate
- t is the term
Example 1
Rs.50,000 was deposited at an interest rate of 6% for five years.
Interest = Rs.50000 + (RS.50000 x 6 x 5/100)
Interest = Rs.50000 + Rs.15000
Interest = Rs.65000
Therefore, the interest earned is Rs.15000.
Example 2
Example of how compound interest is calculated,
For compound interest FDs, use the following formula:
M = P + P {(1 + i / 100) t -1}
Where,
- P is the principal
- i is the interest rate per period
- t is the term
For this calculation, let’s look at the below example.
M = Rs.50000 {(1 + 6/100) 5-1}
M = Rs.66911.28
Therefore, the yield is Rs.16911.28.
However, manual calculations can be extremely taxing. As a better alternative, you can use an online FD calculator to calculate the maturity amount and the interest earned.
Calculate Your Maturity Amount and the Interest Earned
Total Investment
Rate of Interest (P.a)
%
Time Period (Years)
Invested Amount
0
Est. Returns
Total Value
Best FD Interest Rate Offered
| Banks | Interest Rate |
| SBI | 3% to 7% |
| ICICI Bank | 3% to 7.10% |
| IDFC Bank | 3.50% to 7.75% |
| Yes Bank | 3.25 to 7.50% |
| Indusind Bank | 3.50% to 7.75% |
| Axis Bank | 3.50% to 7.26% |
| HDFC Bank | 3.00% to 7.00% |
| Canara Bank | 4.00% to 7.25% |
| Bank of Baroda | 3.00% to 7.05% |
| Indian Bank | 2.80% to 6.10% |
Tax on Interest Earned on Fixed Deposits
As per the Income Tax Act, 1961, the interest earned on fixed deposits is considered as part of the individual’s ‘income from other sources’ and is subject to full taxation provided the interest income exceeds Rs.40,000 (Rs.50,000) for senior citizens.
If an individual’s interest income from fixed deposits exceeds ₹40,000, they are required to provide their PAN details to the bank. If PAN is furnished, the TDS deducted will be 10% of the total interest earnings. However, if PAN is not provided, the TDS deducted will be higher at 20%. It is important to note that after TDS deduction, the individual’s earnings from fixed deposits are still subject to taxation based on their applicable income tax slab.
Difference Between Fixed Deposit and Savings Account
| Basis Of Difference | Fixed Deposit | Savings Account |
| Interest Rate | Interest rates are usually higher in case of a fixed deposit. | Savings accounts have lower interest rates. |
| Tenure | The tenure for a fixed deposit ranges between 7 and 10 years. | There is no fixed tenure for savings accounts. |
| Loans | A fixed deposit acts as collateral in the event of availing of a loan facility. | There is no loan facility offered by a savings account. |
| Withdrawal | There is a facility of premature withdrawal before exiting a fixed deposit. | Account holders can withdraw money from their savings account anytime, provided they maintain the minimum balance. |
| Tax Benefits | Tax-saver FDs offer tax benefits of up to Rs.1.5 lakh under Section 80C of the I-T Act | You cannot claim tax benefits on savings account deposits |
Final Word
Fixed deposits are still a popular choice of investment for most Indians. However, the returns could be less than other investment options like mutual funds or stocks. But then, FDs offer assured returns, meaning you don’t have the risk of losing your money.
Looking for other-tax saving instruments? You can consider investing in Nifty 50 tax-saver fund with Navi Mutual Fund and claim tax deduction benefits of up to Rs.1.5 lakh today. Download the Navi app, explore funds and start investing
FAQs
The minimum deposit is Rs.1000 and there’s no maximum limit.
There’s no minimum age as such even children can have fixed deposits maintained by their parents.
It is necessary to link your fixed deposit (FD) account with your savings account. Additionally, you must set a minimum balance that you wish to maintain in your savings account. In case of any deficit, it will be automatically replenished from your FD account to your savings account.
Yes, A loan against fixed deposit (FD) is a secured loan option where customers can utilize their FD as collateral to obtain a loan in exchange.
Excellent investment option for those investors who don’t want to bear any risk.
Yes, and can range from 7 days to 10 years.
FDs are ideal for risk-averse investors looking for guaranteed returns. Also, if you are looking to park in a tax-saving investment vehicle, you could go for FDs. Considering the FD rates are going up, you could also invest in FDs simultaneously with your mutual fund investments to diversify your portfolio.
Yes. If you need money urgently, you can withdraw money from your FD account by the due date. This is called early withdrawal. You can also partially withdraw the desired amount from your FD account. However, it is not advisable to withdraw early by the due date, as banks will reduce FD rates in accordance with regulations.
TDS does not apply to interest rates ranging from 5,000 to 10,000 rupees (depending on the financial institution). If the investor’s total income is below the tax limit, you can submit Form 15G / 15H when opening an FD account to avoid tax credits.
Banks and other financial institutions offer depositors the opportunity to nominate in the face of contingencies. The nominee can claim the fixed deposit amount at maturity if the depositor dies. However, this depends on how you hold it.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
