A Quick Checklist for FD investors

Are you thinking of investing in a fixed deposit scheme?

Fixed deposits are very popular if you want to invest in a secured instrument which guarantees returns. Almost all banks and non-banking financial companies offer attractive fixed deposit schemes which promise good interest rates. Choosing a scheme is also easy as nowadays you can open a deposit online within a matter of minutes.

While fixed deposits are popular and also easy to opt for, there are some things which you should keep in mind if you are thinking of choosing a fixed deposit scheme. Here is a quick checklist for you to consider –

The rate of interest promised

The first thing which you should check is the interest rate offered by the scheme. Different financial institutions have different interest rates and the rates also depend on the money invested, your age and the investment tenure. If you want to go for the highest available interest rate on your fixed deposit, compare the available rates of different institutions to get the best rate.

The amount and the investment period

You have the choice of the amount that you want to deposit and the period for which you want to hold your investments. Be clear on these two aspects of your deposit to avoid any confusion later on. Also, check the maturity amount for your deposit using these two factors in the fixed deposit calculator.

A frequency of interest calculation

Fixed deposit schemes not only calculate the interest every year but in other frequencies too. Many institutions offer you the facility of choosing the frequency of interest calculations which can be yearly, half-yearly, quarterly and monthly.

Documents required

If you open a fixed deposit scheme with an institution with which you already have a relationship, i.e. you are an existing customer of the bank or financial institution, no additional documents would be required to open the deposit. However, if you choose a deposit scheme for a new institution, you would have to submit your KYC documents and photograph to open the scheme.

Penalties on early withdrawals

Fixed deposits have a fixed tenure which you choose and the deposit cannot be withdrawn during the fixed tenure. However, there are certain deposit schemes which allow premature withdrawals from the scheme. When availing the deposit, you should check whether withdrawals before the completion of the tenure are allowed or not. If allowed, check the charges involved on such withdrawals to have a clear idea what withdrawing your fixed deposit before the time limit would cost you.

Tax efficiency

If you invest in a five-year fixed deposit scheme, you are allowed a tax deduction on your investments. The amount that is invested in the scheme would be allowed as a deduction from your taxable income up to INR 1.5 lakhs under Section 80C. The interest earned, however, would be taxable in your hands unless you are a senior citizen in which case interest of up to INR 50,000 is free from tax under Section 80 TTB.

So, check for these aspects of the fixed deposit scheme before you invest your money in it.

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