Everything you wanted to know about fixed deposits

company FDs

FDs can be traced back to the time when banking system was first brought into action in India. A traditional investment option that offers guaranteed returns, it is no wonder that FDs still remain one of the most popular avenues to grow your wealth. Whether you are self-employed or salaried, FDs safeguard your hard-earned corpus and allow you to earmark your earnings right down to the last penny.

Fixed deposits are offered by banks and companies. The key difference between bank deposits and company FDs is the interest they offer on your investment. Company FDs usually come with a higher interest payout. To keep your interest safe, you can choose company FDs with a high safety rating. Even though FDs are one of the most traditional instruments, they allow you to keep pace with time and offer inflation beating returns on your investment, at least in the short term. You can use your fixed deposit maturity amount to achieve your long-term goals, be it financing the higher education for your children, taking care of your retirement expenses, saving for your home’s down payment and more.

What is a fixed deposit?

A fixed deposit, also known as term deposit, is a financial instrument where you can invest a principal amount to earn a fixed interest return through your chosen tenor. During the tenor, your money is locked-in. To ensure you do not lose out on higher returns on FDs, choose to invest with top NBFCs like Bajaj Finance that offer Fixed Deposits with FD interest rates up to 8.75% for regular customers and 9.10% for senior citizens.

How you can benefit from a fixed deposit

Fixed deposits are the safest investment avenue in the market, allowing you to pocket a high interest on your investment based on your chosen interest frequency. Picking the right issuer and a smaller frequency helps you generate more growth. Moreover, FDs give you a chance to accumulate funds to achieve your long-term objectives with ease. You can use the FD calculator to forecast the exact amount you earn, and plan your goals confidently.

FDs are a good way to bring financial discipline to the fore, as ideally, you cannot withdraw your investment until maturity. However, when you have an emergency, you can prematurely withdraw your investment by paying a small penalty. Additionally, you can take an affordable Loan against FD to continue earnings interest on your investment while addressing your urgent needs for money.

What are the types of a fixed deposit?

FDs are primarily of two types: cumulative FDs and non-cumulative FDs. You can differentiate between the two basis the way you can access the interest on your investment. In case of non-cumulative fixed deposits, you earn interest on chosen intervals, be it monthly, quarterly or annual. You can decide the frequency of your interest earnings as per your financial capabilities and access it as a regular income to fund daily expenses.

Alternatively, for cumulative FDs the interest is calculated through a quarterly or annual frequency. Here the interest then gets added to your invested sum. You will get to access this only at the end of your tenor along with the principal amount. The interest on cumulative FDs is higher as your interest gets added to your original corpus and earns you more, which is the power of compounding that FD offer. Armed with this information, you pick an FD option depending on the end goal of your investment.

What tax benefits can you avail on your earnings from an FD?

Under Section 80C of the Income Tax Act of India, interest earned on company fixed deposits up to Rs.5,000 is exempt from tax. Any additional income is taxable as per your tax slab. However, if your taxable income, including returns from fixed deposits, is lower than the taxable amount then you can save yourself from paying tax by submitting Form 15G or Form 15H. Alternatively, if you invest in a tax-saving bank FD with a lock-in period of 5 years, you get an exemption under Section 80C. As per the exemption limits of this section, you can claim up to Rs.1.5 lakh deductions on your FD investment.

So, irrespective of your risk appetite and financial strength, it is smart to include FDs in your investment plan! The best way to go about your investment is to ladder your FDs by timing the maturity for each FD based on your needs so that you get access to funds at the exact time you need them.