9 Important Things to Know before Opening an FD Account

It is one of the most preferred forms of investments as it is compared to be safer than equities. Moreover, the returns are also known before investing the money, unlike equities.  Because the money is invested for a pre-determined duration, fixed deposits are also called as ‘term deposits’.

It is a perfect investment option for investors who want to avert the risk and also helps in fulfilling your long-term financial goals- such as securing your child’s future, higher education, marriage, and other major unexpected expenses that may arise in future.

Here are certain things that you must know before investing in an FD account:

Opening an FD account

It is quite simple to open your fixed deposit account with the same bank with which you have your savings account. Some banks also allow you to open a fixed deposit account even if you do not have a savings account with the bank. You just need to go through a simple Know-Your-Customer (KYC) process to open a bank FD account without a savings account.

Here is what the KYC process looks like:

• Provide self-attested Xerox of ID proof such as your PAN Card, your Voter ID Card, Aadhar Card, and Passport, etc.
• Colored passport size photos
• Original documents also need to be furnished during the verification

Minimum Deposit Amount

Every bank has different minimum and maximum deposit limits. It is suggested to check with the bank before opening an FD account.

For example, at the minimum limit for SBI Fixed deposits is Rs. 1000 and there is no maximum limit. However, the minimum limit for ICICI FDs for minors is Rs. 2000 and for General Citizens it is Rs. 10,000.

Tenure:

As fixed deposits are done for specified time duration, it is important to check the tenure carefully. You can choose a period between 1 year and 10 years as per your requirement. There are FDs for a period of 7 days also. And premature closure/withdrawal of a fixed deposit would call for a penalty that will reduce your total FD interest/deposit rate.

So, the minimum and maximum tenure of a fixed deposit generally varies from one bank to another. Depending on your financial goals and financial requirement, you can select the tenure of your FD and invest accordingly.

Fixed Deposit Rates and Payouts

The interest rate offered on the FD will depend on the period for which you are investing in the FD and also vary from bank to bank for FDs for the same tenure. The FD interest rate on Senior citizens’ FDs is higher than the General FD interest rates. For instance, SBI fixed deposit rates will vary from ICICI FD rates for the same duration of Fixed Deposit.
There are two types of payouts in fixed deposit schemes -cumulative and non-cumulative. Depending on your requirement you can choose any of them. So, you can opt for non-cumulative fixed deposit if you are looking for a regular source of income on a monthly/quarterly/half yearly/annual basis.

Or you can choose the cumulative one if you are looking to save for a long-term and get returns on maturity on both the principal and the accumulated interest. In this case, the total interest amount that is accrued is re-invested and is paid to you along with the principal amount at the time of maturity.

On the other hand, if you invest in a non-cumulative FD, the interest will get credited into your account at the pay-out interval that you have opted for. You can choose the payout on monthly/quarterly/half-yearly and on an annual basis as offered by your bank.

Tax Exemption Benefits on FDS

The interest that you receive on your FD is fully taxable as per your Income Tax slabs. The bank will deduct the TDS if the interest earned in a financial year is more than Rs. 10,000, as per the Income tax laws. To ensure that your TDS is not deducted you can submit your Form 15G or Form 15H to your bank.

Premature Withdrawals

In case of any financial emergency, you can withdraw your FD before the maturity date; however, the bank may levy a penalty on premature withdrawals. However, the penalty amount differs from one bank to another.

It is advisable to check the rules pertaining to pre-mature withdrawals while opening your FD account.

FD interest have fallen consistently over the last 5 years.

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There are some banks that offer a premature withdrawal facility without a penalty.

Loan Facility against Fixed Deposits

Your fixed deposit can be used as collateral to get a loan. The maximum loan amount can be a certain percentage of the principal amount that is deposited. However, this percentage can vary from one bank to another.

Nomination Facility against Fixed Deposits

If you are the sole depositor it is better to make someone a nominee.  In case of the death of the FD Account holder, the nominee can claim the maturity amount along with the interest earned.

Automatic Renewals

Most of the banks renew the FD automatically every year until the maturity date (until specific instructions are given).  You can choose for an automatic renewal of your FD or opt out of it and mention it in the FD form. In case you forget to mention it, you can visit your bank branch and ask them to credit the amount in your bank savings account.

Nowadays, both private and public sector banks allow you to open an FD account online through mobile banking or internet banking app. You don’t need to visit the branch physically and get your FD account opened in few minutes.

Bottom-line

So, if you have a fixed deposit account or are planning to open one, you can refer to the above guidelines for the same. These 8 tips will ensure that your FD account serves the purpose you opened it for – be it your long-term financial goals or to create savings.