Fixed Deposit also known as term deposit is a system of investing capital wherein a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest depending on the maturity period.
The system of investing in fixed deposit is one of the most common scheme open to an investor and gives a higher rate of interest than a savings bank account.
The scheme work with great flexibility it ranges from 7days to 10 years. The rate of interest is conjugated annual basis and gets added with the principal amount.
Minimum deposit amount can be from Rs 100/- and there is no upper limit also this differs from Bank to bank.
The facilities vary from bank to bank but are fairly safer because banks are subject to control of the Reserve Bank of India. In our view, the economy is undeniably headed for elevated rate of interest and it is as high as people can never expect it. For this reason, investors for their own sake ought to make certain balance in their portfolios in order to combat with the circumstances.
Investing in Bank deposits is rather safe as the banks are under the control of RBI in regard to numerous policy and operational limitations.
The banks can offer various rate of interests in fixed deposits of different maturities though the interest is compounded once in three months, which lead.
The lowest amount for deposit varies from bank to bank. IN few bank, it is as low as Rs.100/-
If the amount is kept in five or ten small fixed deposits instead of making one big deposit then the investor while withdrawal of partial amount would require to encash one or two deposit according to need. The loss persistent in interest will be less in such case.
These deposits are the safest investment scheme as bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India.
It is also possible for the investor to get loans up to75- 90% of the deposit amount from banks against his or her fixed deposit receipts.
Interest rate earned from the deposit will be counted as 2% lesser than the charged interest rate.
With addition of other stipulated income, bank deposit investment is subjected for exemption from income-tax under 80L section , and limit for this is up to Rs.12,000/- . It has become effective from A.Y. 1998 to 1999.
Also, from A.Y. 1993-94, bank deposits are completely excused from wealth tax. The 1995 Finance Bill Proposals initiated tax deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/- and above per annum.
The rate of interest for Bank Fixed Deposits differs between 4 and 11 per cent, depending on the maturity period of the FD and the amount been invested and also differ between each bank.
Although a Bank FD does not offer a regular interest income thy gives a lump-sum amount on its maturity.
Some banks have facility of providing interest every quarter or every month, but in such case it may be at a discounted rate in case of monthly interest.
The deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years.
Given are the rate of interest which were offered to investors in 1970s - 1990s
As per Business World Article 2004 with the below mentioned statistics
Things to remember while opening Fixed Deposits
Opening an FD account is very simple.