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Basics Quote Lookup

explained: Know Recently Viewed

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Simplus Information Services

10 September
2014

Basics explained: Know your xed deposits

Bank deposits are one of the most preferred

investment options in India. It is consider safe
and not risky, especially in comparison with
the stock markets and mutual funds.

Here are 10 things you need to know about

What to read next
term deposits:

1. Types of deposits: There are two key

types of term deposits xed deposits and
recurring deposits. A xed deposit is where
you invest all your money at one-go. A
recurring deposit, on the other hand, is when
you invest your money in installments. GST bonanza: Big discounts on Eon, i20
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2. Fixed return: When you opt for a term
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deposit, you are parking your funds in a
particular bank deposit for a xed period of
time. In exchange for holding your money for
a longer period of time, banks oer you to pay
a xed interest. This makes a term deposit a
very safe option. This interest payment acts
as your prot from the investment. Also,
senior citizens usually get a higher interest.
Cars, bikes, clothes, electronics:
Currently, xed deposits oer interest rates
Everything's on discount thanks to GST
up to 10.25%. Recurring deposits usually oer
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a lower interest rate than xed deposits.

3. Tenure of your choice: Term deposits

come with a variety of tenures the amount
of time the money is held with the bank. This
could be as short as 7 days and as long as 10
years.

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4. Interest payout: You can decide whenmi.com, Flipkart at 12PM; heres
everything you need to know
you want your interests to be paid. This can
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be done at the end once the deposit matures.
If not, you can opt for regular interest
payments on quarterly, half-yearly or annual
intervals. Some banks also oer you a choice
to reinvest your interest payments.

5. Longer the duration, higher the

return: Term deposits oer a wide variety of
interest rates. It changes with the durationA of
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the deposit. Greater the duration, larger iscofounder
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interest rate oered. This is to attract
investors to deposit money for as longer a
time as possible. Also, the bank pays
interests regularly. Over a period of time, this
money can either be reinvested in the same
deposit or saved in your bank account. This
would earn you additional interests, thus
increasing your total return.

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6. Cheaper borrowing for banks: Banks Insurance Plans
usually borrow money to give out as loans.
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The interest payments on loans by borrowers

are banks key source of income. Banks can
borrow from other banks and the Reserve
Bank of India. However, these have
restrictions are considered costlier. The
money you deposit with your bank, on the
other hand, acts as a source of cheap
borrowing for the bank. However, the money
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in the savings accounts could be withdrawn
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any moment by depositors. This increasesmillion
risks for the banks. For this reason, banks
actively try to attract deposits to invest in
term deposits. This is because, the amount in
deposits are unlikely to be touched for a
longer period of time.

7. Breaking a deposit: The only rule of a

term deposit is that once you deposit, you
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cannot touch this money. If you wish to face-o
reclaim your deposit amount, you will be ned
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a particular sum or your total interest
payment may be reduced. Sometimes, banks
may only allow you to withdraw the money
after a certain minimum period. Ensure you
get these details before investing.

8. Overdraft against your xed deposit:

If you are in desperate need of liquid cash,
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and you have withdrawn all of your funds in
products for the dierently-abled
your bank accounts, you can borrow on the
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basis of your xed deposits. This is called the
overdraft facility. However, there is a limit to
how much you can borrow under this service.
Moreover, it may not be interest-free. Check
with your banks before opting for the facility.

9. Taxation of deposits: Interest payments

on xed deposits are taxable. This depends
GST: What will be costlier, what will be
on your overall income tax bracket. For
cheaper
example, if you fall in the 20% income tax
bracket, your interest payments would be
taxed at the same rate. This is why xed
deposits are usually not preferred by those in
the 30% bracket. Also, if your total interest
payment in a year exceeds Rs 10,000, then
the bank cuts 10% as tax deducted at source
(TDS). However, if you submit the Form 15G/H
to the bank stating you have no taxable How India became a more cashless
economy after note ban
income, then the bank will not deduct TDS.
You can also split your term deposits across
banks to ensure the interest does not exceed
Rs 10,000 in a single bank.

10. Tax savings: Banks oer xed deposits

for tax-saving purposes. The amount you save
in such deposits can reduce your total taxable
income, and thus help you save taxes. Tax-
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saving deposits have a minimum tenure of 5
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years and a maximum of 10 years. The
government has also capped the maximum
amount you can invest in such a deposit for
tax purposes to Rs 1 lakh per year. However,
the interest you earn will be taxable.

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