A Quick Guide to Investing in Fixed Deposits: Benefits, tax and more 

Fixed deposits are a safe, low-risk investment option and a staple in the Indian investor’s portfolio. They are the ideal choice for risk-averse individuals and are a great tool even for millennials. Best of all, you don’t need extensive market knowledge to start investing, as these are fixed-income options. 

Gone are the days when you needed a large corpus to get started or even had to visit a physical branch to invest. You can now start a fixed deposit online and handle all formalities conveniently. 

With these advancements, it is even more important to know all you can about the instrument. This means understanding how it works and the role of key documentation such as Form 15G or 15H. 

Read on to arm yourself with the information you need to invest wisely.

What is a Fixed Deposit?

A fixed deposit (FD) is an investment tool that entails investing a one-time sum with a bank or a financial company for a predetermined amount of time, called tenure. During this period, the deposit earns interest at a fixed rate. 

This deposit cannot be accessed by you during its tenure and grows in value over time as interest is calculated on earnings already accrued on a yearly basis. Fixed deposits are considered as a safe option since the interest rate is locked in and doesn’t fluctuate, no matter the volatility in the market. 

The banks offer FDs, post offices and companies (such as non-banking financial companies or other financial companies). Senior citizens usually enjoy a higher FD interest rate, which helps them earn income during their retirement years. 

FDs are a great way to save and grow your funds to meet your goals or objectives, be it the purchase of assets, vacations, school or college fees, home improvement, weddings and more. 

How are Fixed Deposits taxed?

Fixed deposits provide several tax benefits based on the type of FD and the investor profile. Take a look at them:

  • Interest income from an FD is taxable as per your tax slab. 
  • Senior citizens can get a tax exemption on interest earnings up to Rs.50,000 per year. 
  • Investing in tax-saver FD of at least 5 years allows you to get an IT deduction of up to Rs.1.50 lakh per year under Section 80C of the IT Act. 
  • The issuer will deduct TDS before crediting your interest payout even if it exceeds Rs.40,000 for non-senior investors and Rs.50,000 for seniors. 
  • If your income is below the taxable limit, you can submit Form 15H or 15G to claim exemption from TDS. While Form 15H is for seniors, 15G is for non-seniors. 

Advantages of Investing in Fixed Deposits

  • They allow you to predict your returns as the interest rates are fixed.
  • They keep your invested amount safe and away from market fluctuations.
  • They allow you to get a loan against your FD to meet urgent needs for finance.
  • They offer you flexible payout modes as per your needs.
  • They don’t require monitoring as they are not market-linked.
  • They are easy to renew online.
  • They allow you to make a premature withdrawal with a small penalty fee.

How to Invest in Fixed Deposits

Before choosing to invest in fixed deposits, there are several aspects to consider. Here are some of them. 

Step 1: Choose the Right Issuer 

While post offices and banks offer FDs that may give you tax benefits, company FDs usually provide higher interest. When choosing a financial institution to invest with, look for one that is reliable, has high safety ratings and offers competitive interest rates. Do your research and use the FD calculator to forecast your earnings before you invest. 

Step 2: Determine Your Investment Goals

It’s crucial to take your financial objectives into account before investing in fixed deposits. Whether it is for a down payment on a house, retirement, or a child’s education, knowing your goals will always help you decide how much and for how long to invest.

Step 3: Decide How Much To Invest

Fixed deposit issuers typically require a minimum investment amount from Rs.5000-15,000, so consider this aspect too. Also, keep in mind that investing for longer usually gets you higher FD interest rates. Some issuers also have special tenures that increase your earnings with special rates. Consider all this to decide the value and tenure of your FD. 

Step 5: Select the frequency of interest earnings 

The next step is to choose how often you’d like to receive interest payouts. In most cases, you can choose either monthly, quarterly, half-yearly, or annual earnings or the full payout at maturity. The latter usually allows you to enjoy a higher FD interest rate. 

Step 5: Book your FD

You can start your FD either online or by visiting an issuer’s branch. Submit your KYC documents (such as PAN, Aadhaar card, ration card or others) and make the payment to get started. You’ll then receive a receipt or confirmation of your deposit that serves as proof of your investment. 

As you can see, fixed deposits offer a simple and stress-free way to watch your money grow over time. Make sure you understand its tax and other implications before you start one and then sit back to enjoy the power of compounding!

1 thought on “<strong>A Quick Guide to Investing in Fixed Deposits: Benefits, tax and more </strong>”

  1. Thanks for sharing this type of tips for senior citizen to invest their hard earned money in fixed deposits to earn interest . Till date only post office is the best option to keep FD to earn higher rate interest comparing with other financial institutions .
    One thing i can not understand earning ₹50,000/- per year on FD interest is not taxable that means only ₹4000/- per month? What’s this? In my opinion at least ₹ 25,000/- Should be tax free then it’s ease for senior citizen.

    Please be inform any other safe schemes rather than post office to invest
    T V Venugopal

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