PowerPoint Presentation

Less Known Facts about Fixed Deposits

Fixed deposits have been a favourite investment instrument choice in India for a few decades now. IDBI Bank fixed deposit rates and deposit rates of other such banks are extremely attractive and competitive.

Fixed deposit schemes in India are of two types; periodic interest payout or cumulative fixed deposit.

Under the periodic interest payout option, the depositor receives a fixed amount of interest at the end of every period. These tenures can be chosen by the depositor to match his requirements. The payout options available are monthly, quarterly or yearly. With the periodic interest payout option, the interest amount remains constant.

With cumulative option, the interest on fixed deposit is compounded quarterly and this process repeats in each quarter. This means, if the rate of interest is 10% p.a. then the depositor will earn 2.5% per quarter as interest.

Fixed deposit interest calculator in compounding mode refers to earning interest on the interest of the fixed deposit. Bank fixed deposits are a secure investment instrument and widely used in India.

Yet, there are some facts about fixed deposits that are still not universally known.

Here are a few less known facts about fixed deposits

INTEREST IS COMPOUNDED QUARTERLYSince interest on fixed deposits is compounded quarterly in India, the more the compounding frequency, higher the interest that the depositor earns on fixed deposits.

LONGER TENURES MAKE MORE SENSEWith latest repo rate cuts by RBI, it would be in the depositors best interest to invest in fixed deposit accounts with longer tenures.

FIXED DEPOSITS HAVE INSURANCE COVERUnder RBIs deposit insurance scheme, deposits up to Rs. 1 Lakh are insurance covered.

How does that help a depositor? It would be to the depositors benefit to diversify the total fund amount into different banks if the fund amount is over Rs.1 Lakh.

SENIOR CITIZENS GET HIGHER DEPOSIT RATESMost banks, like IDBI Bank offers higher deposit rates to senior citizens. Some banks go all the way up to giving senior citizens an additional 0.50% on rack rates.

COMPANY FIXED DEPOSITS ARE UNSECURECompany fixed deposits offer a much higher deposit rate than banks, but there is a catch!Company fixed deposits are unsecured deposits so, even though the returns are higher, so is the risk!

INTEREST IS TAX DEDUCTIBLE AT SOURCEThe interest accrued on fixed deposits is tax deductible at source (TDS) if the interest amount exceeds Rs.10,000 per annum.TDS in this case is calculated with all the branches of the bank taken together.

INTEREST IS NOT TAXED BASED ON RECEIPTInterest on deposit is taxed on the basis of accrual and not on the basis of receipt. Which means, that even if the depositor has invested funds in a fixed deposit account with a lock in period of 3 years, he will pay tax on the accrued interest for each year of the investment.

CHARGE LEVIED FOR PREMATURE WITHDRAWALPremature withdrawals can be made but the depositor is charged for withdrawing funds before the maturity of the fixed deposit account.Therefore, depositors should ideally invest keeping the lock in period in mind and must refrain from breaking the fixed deposit account before its maturity period.

TO SAVE TAXIf the depositor wants to save tax, he could considering opening the fixed deposit in the name of an unemployed spouse.

Visit http://www.bankbazaar.com/fixed-deposit.html To Know More about Fixed Deposit