Things To Keep In Mind When Investing In FDs

Kolkata, December 23: Since they are safe and offers guaranteed returns, Fixed Deposits (FDs) are one of the most common investment options. Here, we shall tell you things you need to keep in mind before investing in an FD. 

Do your homework 

The rate of interest on FDs varies from bank to bank. Compare interest rates offered by different banks. Small Finance Banks will offer higher rates of interest than other banks. Some people think their money is safer in old and established banks, so may go for a lower interest rate if it is a bank they have a relationship with. FD rates for senior citizens are higher. To find out the FD maturity value, you can use an FD calculator that most banks have on their website. You have to choose the type of customer, type of FD, date, and tenure and the calculator will display the interest rate and maturity value. 

Invest your money across different banks 

It is advisable to split your money across four-five FDs of different banks. This way if you need money in an emergency, you can break one deposit and not pay a withdrawal penalty only on one deposit and not your entire deposit. 

Opt for FDs with varying tenures 

One is never sure when one would need money in the future. So spread your FDs across different tenures of one year, two years, three years and five years. Sometimes banks have special offers for certain tenure of a number of days. Look out for these offers as they can help you earn more as interest. 

Tax aspect of FDs 

While investing in FDs, it is important to know the tax implications on FDs. The interest earned on fixed deposits is taxable. The rate of taxation is according to the tax bracket you belong to. So tax rates on your FD income can be 0-30 per cent. You need to declare the income from your FD as ‘income from other sources’ in your income tax return.  However, if interest from your FD does not exceed Rs10,000 in a financial year, it is exempt from taxes. If you are investing a large sum in FD, tax is deducted at source. If you are earning more than Rs10,000 as interest from your FD, but are not liable to pay income tax, you can submit 15G if you are less than 60 years of age and Form 15H if you are more than 60 years of age for nil or lower TDS deduction. 

However five year FDs comes with a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. However, invest in such FDs only if you do not require the money in the next few years. If you prematurely withdraw money from such an FD, the tax benefits will be reversed.