Fixed deposits are safe means of investment. You should allocate at least a certain percentage of your portfolio for fixed deposits. The deposits can be opened in banks, post offices and financial institutions. If you open a fixed deposit in a bank, you will be able to understand the returns based on the tenure. Fixed deposits can be cancelled before the deadline. There are tax-saving fixed deposits which will let you save up to Rs. 1.5 laky per annum under Section 80C of the income tax. You can get returns on fixed deposits on monthly basis or annual basis as per your convenience.
Benefits of Fixed Deposits
- Guaranteed Returns - The returns on fixed deposits are guaranteed. The bank or NBFC (Non-Banking Financial Institution) which commits the interest rate to the customer should pay the committed amount without fail. Hence, there will not be risk to the customer.
- Liquidity - fixes deposits offer great liquidity. You can choose various kinds of payouts as per your convenience. There are monthly, quarterly and annual payouts. Senior citizens and retired persons can enhance the cash flow by subscribing to fixed deposits.
- Better Returns - The returns on fixed deposits are higher than the returns on a savings account. The current interest rate on bank’s savings account is 3.5% per annum. The interest rate on fixed deposits varies from 5.75% to 7.25% per annum. The interest rate will be calculated as per the tenure opted by the customer.
- Cancellation of Fixed Deposit - the fixed deposit can be cancelled before the maturity date. If there is urgent financial need, you can cancel the fixed deposit. The penalty charge for cancellation is low.
- Online Facility - With the advent of internet banking facility, customer can create fixed deposit online. If a fixed deposit is created online, it can be closed online as well. It will save time and effort for customers as well as bankers.
- Flexible Tenure Options - There are flexible tenure options. You can choose the most convenient tenure such as less than one year, 2 years, 3 years, 5 years and 10 years as per your needs. A fixed deposit can be opened with as little duration as 7 days and as high duration as 10 years.
- Returns on Fixed Deposits - Before creating a fixed deposit, you should be aware of the returns on the fixed deposits. The fixed deposit calculator presented by the bank’s website or third-party website will help you in the calculation of returns.
Monthly Interest Payout
Banks will pay higher interest rate on fixed deposits and it is higher than the interest paid on savings account.
Fixed deposits are offered by almost all banks in India. You can open a fixed deposit in a bank with minimal documentation. Some banks offer fixed deposits with monthly payouts. You can go for such kinds of deposits from ICICI Bank, SBI, Axis and various other banks.
When you opt for monthly payout on fixed deposits, the bank will apply the simple interest rate.
The formula for simple interest is as mentioned below:
SI (Simple Interest) = P x N x R / 100
P = Principal amount
N = Number of years
R = Rate of interest (per annum)
For example, if the principal amount is Rs. 10,000 and rate of interest is 10%, the interest calculation per year will be as follows:
SI = 10000 x 1 x 10/100 = Rs. 1000/-
Fixed Deposits of Various Banks
The rate of interest on fixed deposits will be in between 5% and 10%. It varies from one bank to another bank and it is based on the tenure as well. The minimum deposit is Rs. 1000 and there is no limit on the maximum amount.
If you opt for monthly returns, you should go for a lump sum investment. However, you can invest a lump sum of Rs. 5000 as fixed deposit and the returns will be credited on monthly basis. If you are looking for an alternative source of income on a monthly basis, you can opt for monthly payout on your fixed deposits.
The bank offers monthly income opportunity in the form of ‘Jan Hiteshi Deposit Scheme’. The principal amount will be intact and the interest will be paid on monthly basis.
- Eligibility - Individuals, joint account holders, firms and businesses
- Minimum amount - Rs. 2500 in rural branches and Rs. 5000 in urban branches
- Duration - minimum of 12 months and maximum of 120 months
- Interest - payable on monthly basis as per the tenure
- TDS - applicable
- Nomination facility - available
- Loan/overdraft - available
- Premature closure - available
SBI Fixed Deposits Monthly Payout
You can use the SBI Fixed Deposit Calculator to understand the monthly or annual returns on fixed deposits. The bank offers various kinds of deposits to fulfill the needs of all kinds of customers. The deposits are great means to create wealth or save tax.
SBI TDR (Term Deposit) will let you earn income on monthly basis. The TDR will be offered on non-cumulative basis. The interest rate for one year is 6.65%. If you opt for monthly interest, the interest portion on the principal amount will be credited to your savings account automatically.
SBI e-TDR is a special term deposit. The interest accrued on the deposit plus the principal amount will be paid to the customer after the maturity date. The e-TDR can be closed before the maturity date.
TDR and e-TDR can be opened to avail income tax benefits. If you would like to avail income tax benefit, you should opt for tax saving fixed deposit while creating the fixed deposit. The fixed deposit can be subscribed by visiting the nearest SBI bank branch or online as per your convenience.
Loan or overdraft facility is available on the SBI fixed deposits. A loan facility is a convenient option as you will be able to get access to funds without losing the interest on the principal amount. The loan will be granted at 1% interest above the interest paid on the fixed deposits. Thus, you will not lose money in the form of penalty by going for cancellation of the fixed deposit.
The nomination facility is available on fixed deposits. If you die before the maturity date, the proceeds will be paid to the nominee.
SBI Annuity Deposit Scheme
The customer will deposit a lump sum amount and the equated monthly installments will be paid by the bank. The monthly installments comprise of the part principal as well as interest. The interest will be calculated on the reducing balance and it will be paid on monthly basis.
- The payment will start after one year from the date of payment
- The minimum annuity paid to the customer is Rs. 1000/-. Hence, the deposit should not be lower than Rs. 25,000. There is no maximum limit on the deposit.
- Tenure - Annuity payouts can be chosen from 36, 60, 84 and 120 months as per your needs
- No premature cancellation is allowed under the deposit scheme (except the death of the customer)
- Nomination facility is available under the plan
Axis bank offers various kinds of fixed deposits with a maximum interest rate of 6.25%. You can open a fixed deposit of Rs. 10,000 as the lowest denomination and in multiples of Rs. 1. You can open a fixed deposit by approaching the bank branch or online. The online channel will give you great flexibility.
After opening the fixed deposit, you will be able to break it as per your needs. By breaking the fixed deposit, you will withdraw part of the funds and the rest of the funds will continue to earn the interest.
For example, if you had deposited Rs. 1 lakh and after few days the deposit can be broken as per your financial needs. You can break to the extent of Rs. 30,000 which will be credited into your account along with the interest accumulated on that date. The rest of the amount, Rs. 70,000 will continue to earn the interest as per the tenure.
You can take loan/overdraft on the deposit as per your needs.
Bank offers nomination facility as well to fulfill your financial needs.
Fixed Deposits from NBFC
You can buy fixed deposits from NBFC such as Shriram Transport Finance Co. Ltd., Power Finance Corporation Ltd. and Bajaj Finance Limited.
Tax Saver Fixed Deposit
Axis bank offers tax saving fixed deposit with monthly or quarterly payout. You can check the eligibility criteria by visiting the official website of the bank. The tax saver fixed deposit will come with a minimum of 5-year lock-in period. You can pick the ‘tax saving monthly interest payout’ so that there will be regular flow of cash.
Factors which Influence the Interest Rate
The bank will revise the interest rates on regular basis based on the following factors:
- RBI Monetary Policy - RBI (Reserve Bank of India) is the central bank of the country. The bank has the responsibility to control the flow of funds. Hence, banks should design various kinds of financial products in tune with the monetary policy announced by the RBI. Hence, interest rates will go up or down as per the monetary controls or regulations of RBI.
- Inflation - If there is price rise, it will lead to the reduction of purchase power of rupee. Bank will offer term deposits at higher interest rates to compensate for the loss made by the loans given to customers.
- Recession - The economic slowdown is also called a recession. The money supply will be low during the recession period. RBI will increase the supply by decreasing the interest rates on deposits in bank. It will lead to the decrease in interest rate on fixed deposits.
TDS on Fixed Deposits
Banks will deduct the returns on fixed deposits if the returns are more than Rs. 10,000 in a financial year. If you would like to prevent the deduction of interest by the bank, you should want to provide the Form 15G or Form 15H as per the case. Form 15G should be provided by customers whose age is less than 60 years. Form 15H should be provided by senior citizens.
For senior citizens, there will not be TDS up to Rs. 50,000 income on fixed deposits. The returns on tax-saving fixed deposits should be clubbed to the regular income and the taxpayer should pay the tax as per the income tax slab.
Submission of Form 15G/H
You can submit Form 15G/H at the bank branch where you had opened the fixed deposit or online. Some banks like SBI allow you the submission of Form 15G/H online. You should provide accurate information while filling out the online form.
Fixed Deposits vs. Recurring Deposits
There is a difference between fixed deposits and recurring deposits. You can find out the difference in terms of purpose, duration, eligibility, interest rate, frequency, renewals, withdrawals and loans.
Recurring deposits are as safe as fixed deposits. There will not be a loss to the principal amount. However, fixed deposits are meant to deliver better returns than savings deposits. Recurring deposits are great means to save money. The duration of a recurring deposit can be as little as 6 months to as high as 10 years.
You can take loan on fixed deposits to the extent of 70% to 90%. It is possible to take loan on recurring deposits to the extent of 90%. The interest accrued on RD will not be subject to TDS. However, the customer should include the interest amount with the total income and it should be shown in the annual tax returns.
Fixed deposits are offered by various banks in India. Customers can deposit lump sum amount and payout can be obtained after the maturity period or on monthly basis. Fixed deposit calculator can be used to calculate your returns and you can opt for a fixed deposit based on the monthly, quarterly or annual returns. The deposits are safe and secure and you will meet your financial goals without any issues.
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