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Fixed Deposit Investing: 9 Important Things You Should Know Before Investing in FD

Posted: 29th December, 2022

Updated: 2nd February, 2023

Written by -

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A Fixed Deposit (FD) may be an easy and safe investment, but there are many things that you should keep in mind before booking a fixed deposit account. The interest rate, tenure, and security of the deposit are some of the top factors to keep in check.

With a Shriram Fixed Deposit, you can customise your deposit according to your requirements. A Shriram FD also helps you reach your financial goals faster with its high-interest rates of up to 9.05%* p.a. (including 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors).

The features of a fixed deposit will enable you to invest efficiently and earn more returns over time. Let us look at 9 important things you should know before opening an FD:

  1. 1. Deposit Amount

The deposit amount differs across banks and NBFCs (Non-Banking Financial Companies). Some financial institutions offer a lower deposit amount, allowing everyone to invest in a fixed deposit. Most banks and NBFCs allow you to open an FD with an investment amount as low as Rs. 5000.

Usually, there is no maximum deposit amount, but it is essential to check the financial institution’s guidelines. The more money you invest in a deposit, the more interest you can earn on it. You can use the Shriram FD calculator to plan your deposit efficiently.

  1. 2. Tenure

A fixed deposit interest rate depends on the tenure of the deposit. Once the term is chosen, the interest rate also gets locked in till the day of maturity. Individuals can select any tenure that suits their requirement for investing in a fixed deposit. The term of the FD will vary according to the financial institution of your choice.

Planning your financial goals becomes easy with the flexibility of an FD tenure. You can invest any amount for a minimum tenure of 7 days and a maximum tenure of 10 years. The term of the fixed deposit cannot be changed once the deposit is booked.

  1. 3. FD Rates and Payouts

The interest rate on a fixed deposit is decided according to tenure and may vary among banks and NBFCs. The FD interest rates for senior citizens are usually higher, as some financial institutes offer bonus interest for the elderly.

The payout of a fixed deposit depends on the type of fixed deposit you select. You can either invest in a cumulative or a non-cumulative deposit. With a cumulative FD, an investor can earn more interest if they refrain from breaking the FD before its maturity. A non-cumulative deposit allows you to get the interest as a regular pay-out which can be received monthly, quarterly, half-yearly, or yearly.

  1. 4. TDS (Tax Deducted at Source) Charges

A financial institution like Shriram can deduct TDS on an FD if the interest income exceeds Rs. 5,000 per year. The interest on a fixed deposit will also incur tax if you fall within the taxable bracket decided by the government. The TDS on FD interest will be calculated by adding it to the total of your income from all sources.

  1. 5. Tax Exemptions

A standard fixed deposit from Shriram will allow you claim tax exemption on the interest amount up to Rs. 5,000. It is noteworthy that resident citizens & senior citizens whose income is below Rs. 2,50,000 and Rs. 5,00,000 respectively can submit Form 15G/Form 15H shall be completely exempted from paying tax.

  1. 6. Premature Withdrawals

Withdrawing a fixed deposit before its maturity is an easy process. You will be charged a penalty fee for a premature withdrawal. Some banks and NBFCs may waive the penalty charges if the depositor can prove that the funds were withdrawn for an emergency.

Most financial institutes charge around 0.5% to 2% of the interest as a penalty for early withdrawal. Partial withdrawal of funds is allowed by some banks and NBFCs. The penalty will be charged on the interest alone. Premature withdrawal of a deposit is highly discouraged because, in some cases, the depositor may lose the entire interest earned.

  1. 7. Loan against Fixed Deposit

If you require emergency funds, instead of breaking a fixed deposit – you can use the FD as collateral to take a loan. Only a few necessary documents are required to avail of the loan, and there will be no CIBIL score check for a loan of this type. Since the bank or NBFC already has most of your details, there won’t be much processing and the loan will be disbursed quickly.

Some financial institutes only offer a loan against FD. Remember to check with your bank or NBFC to know this facility’s detail before applying. In most cases, you can only take up to 90% of the amount in the FD as a loan. There will be no prepayment penalty for this type of loan.

  1. 8. Nomination Facility

In the case of the sudden demise of account holder, the nomination facility ensures that the control of the FD is handed over to a person trusted by the owner. The person assigned as a nominee to the FD can only be a caretaker of the deposit and has to hand it over to the family if a legal heir demands possession.

  1. 9. Automatic Renewal or Withdrawal

Investors can renew or withdraw an FD based on what they choose to do with the post-maturity deposit. The facility of automatic renewal or withdrawal is offered when opening a fixed deposit. This facility makes it convenient for anyone as they won’t have to worry about deciding once the deposit is at maturity.


Conclusion 

There are many factors to consider when opening a fixed deposit. Knowing what to check can help you make an informed decision and will help you get the most out of the fixed deposit. You will also be prepared for any situation by knowing the FD rules and guidelines.

Invest in a Shriram Fixed Deposit today to get 0.25% extra interest on all FD renewals. You can apply for a cumulative deposit to earn high-interest rates or try a non-cumulative deposit if you need a regular interest payout.


FAQs

  1. 1. Is investing in an FD a good idea?

Yes, investing in a fixed deposit can help you develop a healthy savings habit. Invest in a Shriram FD to get high-interest rates of up to 8.75% per annum.

  1. 2. What should I look for in a fixed deposit?

The interest rate and security of a fixed deposit are the most important factors before opening an FD.

  1. 3. Is FD the safest investment?

Yes, a fixed deposit is one of the safest investment options, as market fluctuations do not impact the interest rates. You also get assured returns for every deposit you create.

Key Highlights:

  • A fixed deposit is a secure investment option to help you achieve your financial goals
  • The flexible tenure of an FD helps you plan your finances more efficiently.
  • You can avail of a loan against an FD if you need extra funds.
  • A standard fixed deposit from Shriram will allow you claim tax exemption on the interest amount up to Rs. 5,000.
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