Fixed Deposit

Meaning:
Fixed deposits – offered by banks - constitute one of the more popular
investment instruments that attach a higher rate of interest (in order to
compensate for a lower degree of liquidity) as opposed to a traditional savings
account till the specified date of maturity.

Features:
- The amount can be deposited only once. Any additional deposits have
to be made in separate accounts.
- The rate of interest is higher than the savings account.
- The duration ranges anywhere between 7 days and 10 years.
- Fixed deposits can be renewed without any hassle.
- Withdrawals can't be made before the maturity period. In case of an
emergency withdrawal, a penalty has to be paid by the customer.

Benefits:
Guaranteed Returns:

One of the main perks of investing in a fixed deposit account is

that it assures returns. This means zero risks as compared to other
forms of investments like mutual funds. On maturity, a fixed rate of
interest will be paid on the investment amount.

Easy to open a fixed deposit account:

You can open an FD account in a matter of a few minutes. You

can either apply for it online or walk into your nearest bank and open it.
Higher rate of interest:

Fixed deposits enable customers to earn a higher rate of interest

as compared to their savings account or any other form of term
deposits.

Flexible Tenure:

You can choose to open a fixed deposit account for a period of 7

days to 10 years.

Multiple FD accounts:

You can hold more than one FD account at a given point of time.
When you want to make an additional investment, you can always open
a new FD account.

Tax Benefit:

You can claim for a tax exemption under Section 80C of the

Income Tax Act of India for a sum of up to INR 1,50,000.

Disadvantages:
1. Interest are Taxed Upon
All interest gained on the fixed deposits are fully taxed upon. The income is denoted under
the head “Income From The Other Sources" when you file your ITR to Income Tax Returns.

There are other financial instruments available, which provide you the benefit of tax-free
savings. The PPF and the government bonds, are a few of them.
2. TDS Taxation
Interests gained from a FD are also charged with TDS. Banks reduce it from the interest
accrued at the end of each year. However, the depositor has the option to opt out of TDS, and
pay all the interest at the maturity. The form 26 AS, is linked to the PAN card of the
depositor and shows all the TDS deductions made towards the FD.

3. Lower Interest Rate

While the FD can offer you a higher interest rate of 10%, the other investment avenues,
including the mutual funds offer returns that can be more than 20% or 30%. While there are
more risks associated with the Mutual Funds (MF), those with a higher risk appetite can
make more profits by investing in an MF. 

4. Interest Rate can be Lower than Inflation

Sometimes the inflation rate may be even higher than the interest rate of the FD.

5. No Increase in Interests
FDs have the same interest for their complete tenure. Hence the gains are fixed and would
not increase.                                                              

FDs were earlier only good for short tenure savings, but now they have much greater tenures.
While there are tax-free options (for example) PPF available, FDs can also be used for short-
term savings, which can offer greater returns. The secure deposits provide for the tax
exemptions and are especially useful for those who have a low-risk appetite but want greater
interest rates.