All you Need to Know about Fixed Deposits

A fixed deposit (FD) is a financial savings option provided by banks with a higher rate of interest, as compared to the regular savings account. They are considered to be quiet safe in terms of risk, offering guaranteed returns on maturity. The defining criteria of a fixed deposit, is that the money cannot be withdrawn before the maturity period is complete, unlike a recurring deposit or a demand deposit.

The fixed deposit interest rates vary between 4 and 11 percent. The tenure of fixed deposit can range from 7, 15 or 45 days, 1.5 years and can also be extended to a massive 10 years. They are high-interest-yielding deposits and are offered by almost all banks in India. The most popular form of deposits are fixed deposits, while other forms are Recurring Deposit and Flexi Fixed Deposits.

To compensate for low liquidity, fixed deposits tend to offer higher rates of interest compared to common saving accounts. The longest permissible term for any fixed deposit is 10 years. Generally, the longer the term of deposit, higher is the rate of interest offered. However, banks may at times also offer lower rates of interest for a longer period, depending on their norms.

Usually, in India the interest on fixed deposits is paid every three months from the date of the deposit. Although banks can refuse to repay fixed deposits before the maturity period, they usually tend not to. This is known as a premature withdrawal. In these cases the agreed upon rate of interest is paid on the amount withdrawn. In terms of taxability, tax is deducted by the banks on fixed deposits, if the interest paid to a customer at any bank exceeds the amount of Rs. 10,000 in a financial year. This is called Tax Deducted at Source. The holder is expected to declare it in Income Tax returns, in case there is any tax on fixed deposit interest due after TDS and He must then pay off the amount himself.