Things you must know before making an investment in a fixed deposit

A fixed deposit is one of the most popular savings instruments to save money and get attractive returns on investments, preferably more than the savings account interest rates of any financial institutions. One of the reasons is that a fixed deposit is not just considered as a safer mode of investment but also it is easy to open a fixed deposit account. Also, unlike other saving instruments like mutual funds or real estate, it does not require you to have knowledge about financial markets. However, that does not mean you can invest in any financial institution. The best part is that we can get a  high fd interest rate which can turn out to be very helpful. 

Here are some crucial factors that you must keep in mind before you make a decision about investing in a fixed deposit:

1. Online or offline FD opening

There are two modes of opening a fixed deposit account. The first method is to open a fixed deposit account in any public/private sector banks or post office visiting the bank/post office branch. To open an FD account, the lending institutions will ask you to provide personal details, including your mobile number, email address, and city, etc. 

You can also open an FD account online by visiting the bank website through your net banking/ mobile banking account. The process of opening an FD account is much simpler, and the funds can be debited from your savings account automatically. Also, you can easily view your balance of FD account online.

2. FD amount limit

To open an FD account, you need to deposit a minimum of Rs. 100 in your FD account. At the same time, there is no cap on the maximum amount that you can deposit in your fixed deposit account. However, it is suggested that to deposit funds for high value such as Rs. 1 crore or more, you must inform the concerned bank in advance. Also, the lending institutions prefer online mode or transfer funds through cheque facility, especially for high-value transactions.

3. Rate of interest

FD rates as offered by banks and non-banking financial institutions vary from the lending institution to lending institution, and presently it ranges from 2. 25% to 7.50%. Before investing in any financial institution, you must not forget to compare the FD rates of various institutions. Also, FD rates vary as per the tenure of investment. Usually, for longer tenures, the financial institutions provide higher rates of interest and similarly vice-versa. Further, FD rates are determined as per the RBI guidelines.

4. Tax matters

A regular fixed deposit does not provide any tax benefits on your investments. However, if you want to get tax deductions on your investments, here are some ways through which you can save taxes on your investments.

  • Invest in multiple FDs- How this can help is that banks deduct TDS on interest earned on your fixed deposits if it exceeds Rs. 10,000. Also, if your taxable income is less than Rs. 2.5 Lakhs you can submit Form G to the banks.
  • Invest in tax-saver FD: A tax-saver Fd for a tenure upto 5 years also allows you to enjoy tax benefits on your investments. Under Sec 80 C of the Income Tax Act, you can get tax benefits upto Rs. 15 lakhs on your investments. However, these investments do not allow premature withdrawals or loans against fixed deposits.

5. Penalty on premature withdrawal

You cannot withdraw funds from your fixed deposit account before the maturity day, and in case you withdraw either the full amount or the partial amount before the FD tenure, you will be charged a penalty, that varies from bank to bank. So make sure 

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