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In India, Fixed Deposits are one of the most popular ways to save money. They are a safe investment, offer good returns, and are easy to open.

So, what exactly is a fixed deposit?

In a fixed deposit, you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest.

FDs are also called term deposits.

Interest rates

Interest rates on FDs are fixed when you open the deposit and the rate depends on the term that you wish to hold it for. HDFC Bank recently (April 2018) increased the interest rate on its Fixed Deposits of certain tenures by 1%. Visit the HDFC Bank website to view the latest FD interest rates. Secure investment A fixed deposit offers guaranteed returns. Unlike market-led investments where returns fluctuate over time, the returns on an FD are fixed when you open the account. Even if interest rates fall after you open a fixed deposit, you will continue to receive the interest decided at the start. FDs are considered much safer than investments in other assets like equity.

Return on investment

Your return on an FD will depend on the interest rate and the type of deposit you choose. You can opt for a monthly or quarterly pay-out of interest or the reinvestment option, which will give you the benefit of compounding. Check the HDFC Bank FD Calculator to calculate your return on investment.

Flexible Tenures

HDFC Bank offers Fixed Deposit in flexible tenures ranging from 7 days to 10 years.

Loan against FD

While FDs are fixed for an agreed tenure, you can take a loan against it when you need funds. HDFC Bank offers loans against FD in the form of an overdraft, and you can get up to 90% of your FD amount. The benefit is that your FD continues to earn interest, you don’t have to prematurely withdraw your FD, and end up paying a penalty.

Tax on Fixed Deposits

  • Interest on fixed deposits is fully taxable at your slab rate.
  • If the interest exceeds Rs 10,000 in a year, TDS (Tax Deducted at Source) is deducted on it, by the concerned bank.
  • The applicable TDS rate is 10% for resident Indians.
  • For NRIs, the TDS rate is 30% but no TDS is deducted for interest on NRE (Non Resident External) Fixed Deposits since the interest on such FDs is free of tax.
  • If you are a resident Indian but your income from all sources is below the exemption limit of Rs 2.5 lakh per annum, you can submit Form 15G/15H to your bank in order to prevent it from deducting TDS.
  • Interest on fixed deposits up to Rs 50,000 per annum is tax free for senior citizens under Section 80TTB and no TDS is deducted on the same.
  • Benefits of Investing in a Fixed Deposit

  • Assured returns: FD is a secure investment and yields assured returns for your investment.
  • Inculcates saving habit: The investment made in an FD is locked for a fixed time-period and helps develop a habit of saving.
  • Better returns than savings accounts: It yields better returns as compared to a savings account as the interest rate is higher. In a savings account, you can earn interest at up to 6%, whereas in an FD account, FD interest rates start from 7%.
  • Early withdrawal: You can withdraw the money invested in a Fixed Deposit even before the maturity date by paying a nominal penalty charge.
  • Interest payment available at different intervals: Interest can be paid out at maturity, annually or monthly basis depending on the term you choose.
  • Flexible tenure options: You can enjoy the benefit of flexible tenure options and fix your money as long as you want to. You can invest your money for a time period ranging from 1 week to 10 years.