Fixed Deposit
Fixed deposits (FD) are a popular and most sought after financial investment scheme among all classes of investors who are looking for safe, secure and guaranteed returns. Interest rate on fixed deposit are not very high but still have always been the most preferred savings methods through which one can gain a fixed percentage of interest without taking any financial risks.
Fixed Deposits help you take control of your investments, with greater flexibility, assured returns, high stability and high liquidity value, which allows the investor to prematurely withdraw fixed deposits at any point of time and avail a loan facility on the fixed deposit. Fixed deposits are a favorite option among senior citizens, who are generally eligible for a higher rate of interest.
Rules and Regulation of Fixed Deposit:
- Tax Deducted at Source (TDS): The interest earned on fixed deposits are subject to tax deducted at source. Many people have the wrong notion that the interest earned on an fixed deposit is tax-free. This is not true and not paying tax on the interest earned on fixed deposit will only put you in trouble.
- Loan facilities: Customers who hold fixed deposits are eligible to avail a loan facility on the same without any hassle. Most lenders allow depositors a loan facility of up to 90% of the fixed deposit amount. The interest charged will be a certain percentage higher than the interest offered on the fixed deposit.
- Clubbing of interest: The interest earned from both fixed deposit and recurring deposits held across all lenders will be clubbed under one umbrella for the purpose of calculating the total interest earned for tax purposes. This will be done each financial year to evaluate the applicability of TDS.
- Form 15G or 15H: In cases where the interest earned is less than Rs.10,000 then the account holder will not be liable to pay tax. In such a case, it is always wise to fill in form 15G or 15H as a self-declaration.
- Minor or spouse: Fixed deposits opened in the name of a minor or non-working spouse, will not have any tax exemption.
Factors That Affect FD Rates
Fixed deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment. There are various factors that affect the rates of interest for a Fixed Deposit.
- Monetary Policies of the Reserve Bank of India : The several norms and restrictions posed by the Reserve Bank of India, in order to gain optimum control over credit inflow and outflow of fund throughout the country. The changes in repo rate, reverse repo rate, cash reserve ratio affects the interest rate of products like Fixed deposits, loans etc.
- Inflation : When prices of goods and items become more expensive on a daily basis, RBI takes necessary steps to control the inflation. Most of the time to control inflation , RBI announce rate hike and because of this liquidity in market and purchasing power start decreasing.