Six important things to know before you open an FD
Fixed deposits are the most popular way of saving. It is estimated that there are over Rs. 100 lakh crore bank deposits in India. Clearly, an average depositor loves to open a fixed deposit account . However, it is important to consider some factors before you go ahead and open an FD. Things like interest rate, the tenure of deposit, taxes, benefits, and forms to claim exemption have a lasting impact on your bank FD. Let us carefully understand the 6 most important details about opening an FD account. Read on.
1. Online or offline FD opening
You can go to a branch to open a fixed deposit account, or you can do the same online. Banks offer both the facilities. In a bank branch, all you have to do is take a simple form and give the money to get your brand-new FD. Use this link to locate the nearest IDFC Bank branch from your location. You can select the branches by clicking the states given on the left-hand side of the page. You can also use this link to let the bank contact you. All you have to do is share some details like your mobile number, email address, and city, etc. Conversely, you can use the online service to open an FD. In such a case, the amount will be directly debited from your savings account. Usually, the maturity amount, including interest, will be directly credited back to the saving account.
2. FD amount limit
Every fixed deposit account has minimum and maximum limits. These amounts vary from bank to bank. Usually, banks these days have to be informed prior to depositing bulk amounts, such as Rs 1 crore or more as FD. Most banks will allow you to start an FD with as low as Rs 5,000-10,000. For foreign currency non-resident (FCNR) deposits, there are certain additional terms & conditions stipulated by the RBI. If you are depositing more than $10 million, most banks will ask you to speak to their branch manager. Needless to say that any amount deposited as FD in a bank has to be accounted for. Cash deposits are not encouraged by banks. The popular mode of deposit is online transfer and cheque.
3. Rate of interest
You deposit money as FD because you want to earn interest. The rate of interest is extremely important for depositors. Every time you see a sign that says 'open fixed deposit account', the next question always is how much interest will you get. This rate depends on the tenure of the deposit. Banks may have different interest rates depending on the tenure of the deposit. The tax-saver deposit has a tenure of 5 years and its rate of interest will usually match the 5-year tenure of normal FD. The Interest calculated is rounded up to the nearest rupee and calculated on the basis of 365 days a year. In case of a leap year, the interest is calculated on the basis of 366 days a year.
Senior citizens get better rates. For instance, IDFC Bank offers an additional 0.5% incentive for senior citizens over the usual rates. However, this is not applicable for NRE or NRO fixed deposits. The interest rate is calculated in a particular way. Usually, rates up to 180 days are calculated on a simple interest basis. Interest on tenure above 180 days is compounded on a quarterly basis.
4. Tenure of deposit
Different banks have different tenure or period of deposit. This is the minimum time when you have to keep the money with the bank. The minimum tenures are usually 7-14 days. On the other hand, the maximum tenure can 8-10 years. Usually, the interest rates are smaller in the shorter duration. As the tenure rises, the interest rates rise. Banks which usually encourage long tenure offer higher rates for deposits kept for a long period of time. Do note that no interest is payable where a deposit has not been in place for applicable minimum tenure. In the case of IDFC Bank, compound interest or re-investment interest is calculated every quarter and is added to the principal. So, the interest is paid on the interest earned in the previous quarter as well. Do remember these things when you open a fixed deposit account.
5. Penalty on premature withdrawal
Usually, banks impose a penalty of premature withdrawal. This means if you committed to keeping the FD for one year, but had to withdraw it after 2 months, the bank may impose a penalty. Even, partial withdrawals attract penalty. This may be 1% of the applicable interest rate. If the penalty and the rate are mentioned in the fixed deposit account document, the bank is entitled to deduct the penalty. But some new banks do not charge any penalty for premature FD withdrawal. For instance, IDFC Bank has no penalty on early closure. Also, you will get a complimentary savings account when you open an FD. Do remember that no interest will be paid if the FCNR deposit is prematurely withdrawn within 1 year of deposit creation.
6. Tax matters
Under present laws, any interest earned is considered as income. So, interest earned on FD is taxable. This interest earned is added to your total income and tax has to be paid based on your income tax slab. Senior citizens, however, enjoy some deductions. Do remember that if you open a tax-saving FD, you can too enjoy tax benefits. You can deposit a maximum Rs 1.5 lakh a year under Section 80C. There is also tax deducted at source (TDS) on FD. If your interest earned from FD is more than Rs 10,000 in a year, TDS will be deducted. In case your income is less than the income-tax exemption limit, kindly fill form 15G/15H for non-deduction of tax on FD interest.