FD is the very easiest way and a commonly recommended to save your money in India. Most of the the it measured FD is secure option as opposed to the mutual fund and stock market investment. Term of deposits it can be couple of types: FD and RD.
FDs are a great way to save money and earn at the same time. Here are ways in which you can get benefits from the fixed deposits.
Here is a guide of how you can flourish with fixed deposits:
- Tenure of Fixed Deposits:
Fixed deposits have a fixed term period and you can choose the term that best suits your needs and financial stability. Fixed deposits can range from 7 days to 10 years. Financial institutions or banks pay a higher interest rate if the tenure of your fixed deposit is high. You can choose the term of your fixed deposit depending on various factors like your income and the expenses that you make monthly.
If you are earning a monthly income, you might have to keep aside some money for your expenses and you can invest the remaining money in a short term fixed deposit. If you are a retiree, then will want to spread out your fixed incomes in such a way that you will continue getting the refund at precise periods.
- Payment of interest:
You receive the rate of interest on FD that you earn on your investment at fixed period over the tenure or when the fixed deposit matures. You have the option to choose if you want the interest payment on a monthly, quarterly, half-yearly or annual basis or when the fixed deposit matures.
Your decision should depend on your monthly income and expense. You can also choose to reinvest the interest that you earn on your fixed deposit. You need to specify that you wish to reinvest the interest when you open a fixed deposit.
- Taxation on fixed deposit:
If you earn more than INR 10,000 as the interest of the fixed deposit per financial year, then you will have to pay tax on the amount which depends on the tax bracket that you fit in. For example, you fall in the bracket of 15%, then whatever interest you earn above INR 10,000 will be taxed at 15%. But if you submit Form 15G/H then no tax will be deducted by the bank.
- Premature withdrawal of fund:
If you have an emergency and you are in an urgent need of some money then you can withdraw money from your fixed deposit before the tenure ends. However, you will have to pay a penalty and you will also get a lower interest rate which depends on the term for which the fixed deposit was held.
You also have the option of taking a loan against your fixed deposit through an overdraft facility. If you do not have any money in your bank account and you have an emergency, then you can also take a loan based on your fixed deposit. This is known as an overdraft facility. But there is a limit on the amount of money that can be drawn. In addition, you will also need to pay some interest.