Fixed Deposits are one of the most common and preferred forms of investment that is safer than equities. You can also be aware of the returns before investing, unlike equities. Fixed Deposits are also known as “term deposits” because the money in Fixed Deposits is invested for a period of time that is previously determined.

Furthermore, Fixed Deposits are the perfect way of investing for those who want to avert risks and fulfil long-term financial objectives such as higher education, marriage, securing a child’s future and other unexpected major charges that may occur in future. There are some best Fixed Deposit plans that will help your way through.

Although, there are certain things that you should know before opening an FD account.

Top 6 points to know before investing in an FD

Here are some pointers that you should be aware of before going ahead with a Fixed Deposit investment –

Offline or online method of opening an FD account

You can open an FD account by going to the nearest branch of your chosen bank. For this, you need to fill up a form and give your money to open your new FD account.

You can also put the online service of the bank to use. In that case, the amount of money you are willing to deposit will be directly debited from the savings account. Similarly, the matured amount with interest will be credited to your savings account directly.

Limit of the FD amount

All the Fixed Deposit accounts have a minimum and maximum amount that varies from bank to bank. Banks need to be informed these days before depositing amounts like Rs. 1 Crore or more in an FD. Most banks allow people to start a Fixed Deposit account with a minimum amount of Rs. 5,000 to Rs. 10,000.

Naturally, every amount deposited in a Fixed Deposit account in a bank will have to be justified. The most used method of deposition is a cheque or online transfer, as banks do not encourage cash deposits.

Interest rates

Interest rates are very important for investors. Interest rates depend on the tenure of the deposition, and the interest rate also varies from bank to bank. Best Fixed Deposit plans provide a high interest rates for senior citizens.

Tenure of the investment

Different periods or tenure are available in different banks for FDs. The minimum time you keep your money in the bank as an FD is 7 to 14 days, and the maximum is 8 to 10 years. The rate of interest is lower in the case of shorter deposits. And the interest rates rise as the tenure increases.

Penalty in withdrawal before maturity

Usually, banks tend to impose a penalty for premature withdrawal. If you are committed to keeping the Fixed Deposit in the bank for 1 year but have to withdraw it after 3 months, the bank may attract a penalty. Partial withdrawals also attract penalties. The penalty can be 1% of the applied interest rate. Some banks mention the penalty and the interest rate in the FD application form.

Significance of taxes

According to present laws, any earned interest is considered an income. So tax on a Fixed Deposit is paid as per your income tax slab. The bank estimates your TDS for FD earnings at 10% if your interest income exceeds Rs. 40,000 and Rs. 50,000 in the case of a senior citizen FD.

Final words

Now, if you plan to open an FD account, the tips mentioned above will ensure that your Fixed Deposit serves all its purposes, be it savings or your long-term financial aims. And, if you still have any confusion, you can always connect with the representatives of your preferred banks.