Fixed deposit

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Fixed Deposit ( FD ) is a financial instrument provided by a bank or NBFC that provides a higher interest rate to investors than a regular savings account, until the due date is given. This may or may not require creating a separate account. It is known as time deposits or time deposits in Canada, Australia, New Zealand, and the US, and as a bond in the UK and India. They are considered a very safe investment. Time deposits in India, Nepal, and Pakistan are used to denote larger investment classes with varying levels of liquidity. The decisive criterion for fixed deposits is that money can not be withdrawn from FDs compared to repeated deposits or deposits before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates with competitive interest rates. It is important to note that banks can offer lower interest rates under uncertain economic conditions. The interest rate varies between 4 and 7.25 percent. The term of office of an FD may vary from 7, 15 or 45 days to 1.5 years and may be as high as 10 years. This investment is safer than the Post Office Scheme as it is protected by the Deposit Insurance and Credit Guarantee Institution (DICGC). However, DICGC guarantees the amount up to INR 100,000 (about $ 1555) per depositor per bank. They also offer income tax and wealth tax benefits.

Video Fixed deposit

Description

Time deposits are time deposits with high interest rates and are offered by banks in India. The most popular form of Term Deposit is Fixed Deposit, while other forms of time deposits are Repeat Account and Fixed Deposits (the latter is a combination of Giro and Deposito).

To offset low liquidity, FDs offer higher interest than savings. The longest allowed term for FD is 10 years. Generally, the longer the term of the deposit, the higher is the interest rate but the bank may offer lower interest rates for longer periods if expecting the interest rate, in which the Central Bank of a country provides loans to the bank ("repo rate") , will decrease in the future.

Usually in India FD interest is paid every three months from the date of deposit. (eg if the FD a/c opens on 15 February, the first installment of interest will be paid on May 15). Interest is credited to a bank account Savings customers or sent to them by check. This is Simple FD. Customer may choose to have interest reinvested in FD account. In this case, the deposit is called Cumulative FD or FD of compound interest. For such deposits, interest is paid by the amount invested on the maturity of the deposit at the end of the semester.

Although banks may refuse to pay FD before the expiration of deposits, in general they do not pay. This is known as early withdrawal. In such a case, interest is paid at the rate applicable at the time of withdrawal. For example, a deposit made for 5 years at 8%, but withdrawn after 2 years. If the rate applicable at the 2-year deposit date is 5 percent, the interest will be paid at 5 percent. Banks may impose fines for premature withdrawals.

The Bank issues a separate receipt for each FD because each deposit is treated as a different contract. This receipt is known as Fixed Deposit Receipt (FDR), which must be submitted to the bank upon renewal or withdrawal.

Many banks offer automated FD extension facilities where customers provide new instructions for deposits that are due. On the due date, the deposit is renewed for a period similar to the initial deposit with the value applicable at the date of renewal.

The income tax regulation requires that the FD maturity will exceed Rs 20,000, not necessarily be paid in cash. The repayment of such deposits and greater must be made with "A/c payee" which is cross-checked on behalf of the customer or on credit to the current account bank or current/c current customer.

Currently, the bank provides Flexi or sweep facility in FD, where you can withdraw your money via ATM, by check or by funds transfer from your FD account. In that case, any interest earned on the amount you withdraw will be credited to your savings account (the account that has been associated with your FD) and the balance amount will be automatically converted in your new FD. This system helps you get funds from your FD account in an emergency without wasting your time.

Maps Fixed deposit

Benefits of FD

• Customers can avail loans to FDs of up to 80 to 90 percent of the value of deposits. The interest rate on the loan can be 1 to 2 percent of the rate offered on the deposit.
• Indians can open this account for at least 3 months.
Taxation

Taxes are withheld by banks in FDs if interest paid to customers in any bank exceeds Rs. 10,000 in one financial year. This applies to interest paid or reinvested per customer. This is called the Tax deducted on the Source and is currently set at 10% of interest. With a CBS bank can calculate FD holds customers in different branches and TDS is applied if interest exceeds Rs 10,000. The Bank issues Form 16A quarterly to the customer, as a receipt for Tax Deductions in the Source.

However, interest taxes on fixed deposits are not 10%; it applies at the level of the tax plate of deposit holders. If there is a tax on Fixed Deposit interest due after TDS, the holder is expected to declare it in return of the Income Tax and pay it himself.

If the total income for one year is not included in the overall taxable limit, customers may apply Form 15G (under 60 years) or Form 15H (above 60 years) to the bank when starting FD and at the beginning of each financial year to avoid TDS.



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How the bank's FD rate varies with Central Bank policy

In certain macroeconomic conditions (especially during periods of high inflation), the Central Bank adopts a tight monetary policy, namely raising interest rates lent to banks ("repo rates"). Under such conditions, banks also raise interest rates on loans (ie loans) as well as interest on deposits (FDs). In conditions such as high FD levels, FDs become an attractive investment path because they offer good returns and are almost completely safe without risk. This can be checked with an excess level in the country.



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See also

• Repeat deposit
• Time deposit
• Set (finance)
• Savings Account



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References

Source of the article : Wikipedia