What is a Fixed Deposit?
Fixed Deposit is commonly known as FD. It is an investment tool offered by banks to earn higher interest rates than what one gets in a regular savings account. It is also referred to as time deposit/ term deposit many times.
In simple words, it is the interest amount that the bank gives to you on the amount invested for a fixed duration of the time (that can vary from 7 days to 10 years). One thing to be taken care of is that you cannot withdraw money before maturity, unlike a savings deposit without paying penalty.
The FD rates offered by different banks vary according to the duration of the time. Different bank policies such as SBI fixed deposit interest rates vary from 5.75% to 6.75% over a period of 7 days – 10 years.
The other features and benefits of these accounts are:
- Investment amount: These accounts offer the flexibility of choosing the amount of money the depositors desire to deposit.
- Easy to open: The whole process of applying and opening this account is easy, and not much documentation is required.
- Auto-renewal: Banks usually allow the auto-renewal of FDs, ensuring the account holders not to worry on renewals.
- The returns on deposits are unaffected by the market fluctuations.
- NBFCs FD interest rates are higher than the FD rates offered by banks.
- Fixed Deposit can reap additional rate benefits while renewing your deposits.
- As per the Income Tax Act, 1961, tax is deducted at source from interest on Fixed Deposit.
Factors that Affect FD Interest Rates
The various factors that affect FD interest rates are:
- Deposit Tenure: If the tenure is low, the interest rate will be low too, and if the tenure is high or medium range, then the interest rate will be higher as well.
- Deposit Amount: Higher deposit amounts will drive you to have higher interest rates, especially bulk deposits exceeding Rs. 1 crore.
- Depositor type: If you're senior citizen, then you might get 0.25% to 0.50% additional interest rate on fixed deposits.