The interest rate paid on fixed deposits is based on the principal amount and the tenure of the deposit. Fixed deposits are also called as term deposits and the interest rate on these deposits is guaranteed for the term. It is possible to understand the gains that you will make by the maturity date. If you create a one year fixed deposit with SBI, the interest rate paid by the bank will be 6.4%. On the other hand, Fincare Small Finance Bank offers an attractive 8% on 1-year fixed deposits if the deposit volume is less than Rs. 1 crore.
Fixed Deposit Interest Rates
The interest rate on fixed deposits of less than 1-year tenure by most of the reputed banks is in between 5.5% and 6.75%. You can go through the following table which shows the SBI FD Interest Rates as well.
|Bank name||Tenure||Interest rate (%) per annum|
|IDFC Bank||91 days to 180 days||6.75|
|Kotak Mahindra Bank||181 to 363 days||6.5|
|SBI||180 to 210 days||6.35|
|Axis Bank||6 months to 8 months 29 days||6.25|
|ICICI Bank||61 days to 184 days||6|
Higher interest rates are offered small finance banks. ESAF Small Finance Bank offers 8.75 percent, Ujjivan Small Finance Bank offers 8 percent and AU Small Finance Bank offers 7 percent per annum.
You can also get attractive interest rates on fixed deposits by popular banks including SBI, ICICI Bank, HDFC Bank, and Axis Bank.
Why Fixed Deposits?
Fixed deposit (FD) is a financial instrument offered by banks and financial institutions. The interest rate on fixed deposit is higher than the savings account. The fixed interest rate will be paid by the bank as per the agreement for the term chosen by the depositor. Fixed deposits are also called as term deposits and they are very popular in India.
Employees, farmers, workers, professionals and all kinds of business people invest in fixed deposits as they are safe and secure. As a matter of fact, banks will guarantee a fixed deposit of a customer up to Rs. 1 lakh by buying an insurance policy as per the guidelines of the RBI (Reserve Bank of India).
Tenure of Fixed Deposits
The tenure of fixed deposits ranges from 7 days to 10 years. Instead of parking funds in a savings account, you can transfer the funds to a fixed deposit scheme so that you can earn higher interest rate.
There is a trade-off between fixed deposits and savings deposits. The interest earned on savings deposit is exempted from income tax up to Rs. 10,000 per financial year. The interest earned on fixed deposits should be added to other sources of income and the income tax should be paid as per the tax slab.
Tax-Saver Fixed Deposits
You can subscribe to best tax-saving fixed deposits from reputed public and private banks in India.
The following banks offer attractive interest rates as well as flexibility:
- State Bank of India - SBI offers tax-saving fixed deposits with a lock-in period of 5 years. You can invest up to Rs. 1.5 lakh to get exemption from the income tax under Section 80C. A tax-saving fixed deposit can be opened @ 6.75% per annum. The minimum deposit is Rs. 1000 and the maximum deposit is Rs. 1, 50,000. You can deposit in multiples of Rs. 1000. The bank pays 0.5% additional interest for senior citizens. The staff and pensioners of SBI will get additional 1% interest rate.
- ICICI Bank - You can opt for a fixed deposit which pays interest on monthly or quarterly basis. Under the ‘reinvestment plan’, the interest will be compounded on quarterly basis and it will be reinvested along-with the principal. You can make a minimum deposit of Rs. 10,000 and a maximum deposit of Rs. 1.5 lakh @6.5% per annum. Senior citizens will get extra 0.5% interest on fixed deposits.
- Axis Bank - The bank offers fixed deposits under reinvestment or quarterly compounding basis. The lock-in period for fixed deposits is 5 years @ 6.9% per annum and senior citizens will earn 7.4% interest rate on fixed deposits.
- HDFC Bank - The bank offers tax-saving fixed deposits @6% per annum for public and @ 6.5% per annum for senior citizens. The minimum investment is Rs. 100 and the maximum investment is Rs. 1.5 lakh. The lock-in period is 5 years.
- IDBI Bank - The interest rate for regular citizens is 6% and for senior citizens @6.5%.
- Yes Bank - Yes Bank pays higher interest rate for tax-saving fixed deposits @7.19% for regular customers and @7.71% for senior citizens.
- Kotak Mahindra Bank - Kotak Mahindra Bank pays 6.25% interest rate for tax-saving fixed deposits for regular customers and 6.75% for senior citizens.
- Deutsche Bank - Deutsche Bank offers the same interest rate of 8% for regular as well as senior citizens. The minimum investment is Rs. 20,000 and the maximum limit is Rs. 1 lakh per annum.
- IndusInd Bank - IndusInd Bank pays 6.75% interest rate for tax-saving fixed deposits for regular customers and 7.25% for senior citizens. You can invest a maximum of Rs. 1.5 lakh per annum under the tax-saving fixed deposits.
Fixed Deposit Benefits
Fixed deposits can be made for a predetermined tenure at a fixed rate of interest. Part of your investment portfolio can be in the form of fixed deposits so that there will be great convenience.
- Liquidity - Unless you opt for tax-savings fixed deposits, you can close the fixed deposit before the maturity period. If you opt for tax-saving fixed deposit, you will not be able to close the account before 5 years.
- Financial Goals - You can set financial goals and those goals can be reached by buying fixed deposits. The fixed deposits can be used to fulfill the child’s educational needs.
- Automatic Renewal - The fixed deposit can be renewed automatically after the maturity date. You will not lose interest by exercising the auto-renewal facility.
- Partial Withdrawal - Fixed deposits can be withdrawn partially to fulfill your financial needs. For example, you can break a fixed deposit made with axis bank with closing the entire account. Hence, the remnant of the deposit will earn the interest rate without any issues.
- Loan on Fixed Deposits - Banks offer fixed deposits with a loan facility. You can take loan to the extent of 90% on the principal amount. The interest rate on the loan will be very low compared to other kinds of loans offered by the bank.
- Secure Deposits - You can open a fixed deposit online or offline. The deposits are safe and secure. If you open a fixed deposit online, the deposit can be closed online.
- Mobile Banking - You can download the mobile banking app of your bank and various kinds of online transactions including fixed deposits can be created very easily.
- Transparent Process - The fixed deposits are created in a transparent manner. There are no indirect costs involved in the creation or maintenance of records. Unlike mutual funds, your principal amount is secure and the interest rate will be paid by the bank as per the agreement.
Fixed Deposits at a Higher Interest Rate
There are Non-Banking Financial Institutions (NBFCs) to obtain higher interest rates on fixed deposits. The following companies offer attractive interest rates on fixed deposits:
|Company Name||Tenure||Interest Rate per annum|
|HUDCO||2 to 3 years||9.15%|
|Kerala Transport Development Finance Corporation Ltd. (KTDFC)||1 year||8.25%|
|Mahindra Finance||Three years||7.8%|
|Shriram City Union Finance||1 year||7.5%|
The above companies offer higher interest rates for senior citizens ranging from 0.2% to 2% above the regular fixed deposits.
Eligibility for Fixed Deposit Investment
- Individuals and HUF (Hindu Undivided Families) can invest in fixed deposits
- Loans on Fixed Deposits - There are no loan provision for fixed deposits with lock-in period of 5-years.
- Term Deposits at Post Office - You can buy term deposits with post offices which are similar to fixed deposits offered by banks. There are tax-savings fixed deposits which can be opened at any post office in India. If you make a fixed deposit at one branch, it can be transferred to another branch in the postal department.
- Joint Account - Tax-saving fixed deposit can be opened jointly at a post office. The tax benefits are applicable to the primary account holder.
- TDS on Fixed Deposits - Banks will deduct TDS (Tax Deduction at Source) as per the income tax slab of the applicant. The customer should declare the annual income in the designated column of the application form. If the interest earned on fixed deposits in one year is higher than Rs. 10,000 banks will apply TDS automatically. However, there is exemption for senior citizens where the interest income on fixed deposits is less than Rs. 50,000 per annum.
- Higher Interest Rates for Senior Citizens - Senior citizens will earn higher interest rate on fixed deposits.
Fixed Deposits vs. Recurring Deposits
- Frequency of Deposits - When you choose a fixed deposit, you will deposit the money only once. With a recurring deposit, you should deposit money at regular intervals as per the frequency chosen by the customer.
- Convenience - Both fixed deposit and recurring deposit will earn interest on the principal amount. Recurring deposits are a convenient option for salaried employees as they will be able to contribute small deposits on monthly basis. The small deposits will become a large corpus along-with the accumulation of the compound interest.
- Term - The term of a fixed deposit will be between 7 days and 10 years. The recurring deposit term will be between 1-year and 10-years.
- Interest on Deposits - The rate of interest on fixed deposits and recurring deposits will be based on the amount and the term. There will be variation from one bank to another bank. Banks will fix interest rates as per the credit policy announced by the RBI (Reserve Bank of India). The interest rate is also based on the profits made by the bank.
- Minimum and Maximum Limit - Most of the banks stipulate a minimum deposit of Rs. 1000 for a fixed deposit. There is no upper limit. For tax-saving fixed deposit, the upper limit is Rs. 1.5 lakh. You can open a recurring deposit for a minimum of Rs. 500 and the maximum limit is Rs. 15 lakhs per month.
- Premature Withdrawals - There are fixed deposits with and without premature withdrawal option. If you opt for fixed deposits without premature withdrawal option, you will earn higher interest rate. With a recurring deposit, there are restrictions on closing the deposit. You can close RD account in a post office after 3 years with penalty. There are some banks like SBI offering recurring deposits which can be opened online and closed online. There will be a great convenience for customers with the online facility.
- Income Tax Benefits - No tax benefits are applicable for fixed deposits. The income tax benefits are applicable for tax-saving fixed deposits which can be opened either in a post office or bank.
- Loan Facility - You can open a fixed deposit in a bank and avail loan facility on the principal amount. Loans are offered up to 90% of the deposit amount. No loan facility is available on recurring deposits.
Fixed deposits can be opened with banks or NBFCs as per your convenience. Most of the banks offer online fixed deposit creation facility. There is marginal difference between the interest rates of various banks. Axis bank offers highest interest rate of 8.05% for senior citizens for deposits less than Rs. 1 crore for deposits of duration less than 1 year 11 days and more than 1 year 5 days. If the fixed deposit is greater than Rs. 1 crore and less than Rs. 5 crores, the interest rate is 8.25%. Deutsche Bank offers 7.5% interest rate on fixed deposits for regular as well as senior citizens. Customers can create fixed deposits at a bank of their choice and tenure either online or offline.
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