What is Fixed Deposit? What is the definition of Fixed Deposit?

Fixed deposits (FD) are investment instruments offered by banks, financial institutions, and non-banking financial companies, where costumer can deposit money for a higher rate of interest than saving accounts. One can deposit money in fixed deposits for a limited period of time. Generally the criteria for fixed deposits are that customer cannot withdraw the money before maturity period but still if they want to withdraw them in case of need then they can do it by paying a penalty, and it is known as premature withdrawal.

Fixed deposit is also known as term deposit or time deposit in Australia, U.S., and New Zealand and bond in United Kingdom and India. They are considered as safe investment. Some banks and financial institutions offer additional services to fixed deposit including loan against FD certificates at competitive interest rates.

what is fixed deposit fixed deposit definition

Benefits of Fixed Deposits

  • Fixed deposits are safest investments instruments and they also offer greater stability.
  • Unlike the other investment tools fixed deposits are not market-driven and returns on fixed deposits are assured. Fixed deposits are attractive investment for risk-averse investors.
  • Market fluctuations do not affect fixed deposits and it ensures greater safety of investment capital.
  • Customers can be benefited from higher interest rates offered by financial institutions on fixed deposits as compared to saving deposits.
  • The tenure of the fixed deposits can vary from seven days to ten years. One can invest in FDs for a tenure that matches their needs.
  • Customers can avail loan against fixed deposits up to 80 to 90% of the value of deposit.
  • Tax saver fixed deposit attracts tax benefits under section 80C of the Income Tax Act of 1961. It comes under tax-exempt category although the interest earned on fixed deposit is taxable. One can claim a deduction of maximum Rs. 1,50,000 for the amount invested.

Major indications on Fixed Deposits

  • The fixed deposit account can be opened and maintained by any individual as well as by any entity.
  • Customers are provided Fixed Deposit Receipt (FDR) or Certificate of Deposit (CD) by financial institution as a proof after opening the account. These are necessary to submit during maturity period.
  • Fixed deposit accounts cannot be used for any withdrawal or transactions.
  • The interest rate on fixed deposit account always depends on the deposit amount, maturity period, and offerings of the service providers. The interest on fixed deposit is fixed till maturity period.
  • The duration of fixed deposit account can depends upon account holder’s wish and bank’s services. It can range from seven days to ten years.
  • Fixed deposits accounts can be renewed for further period after maturity period if customer wants, otherwise they can withdraw the money after maturity period. During money withdrawal customers will have to submit Fixed Deposit Receipt and Certificate of Deposit in all cases.

Taxability on Fixed Deposits

Banks deducted tax on fixed deposits if the interest paid by bank to a customer exceeds Rs 10,000 in a financial year. This is known as Tax deducted at Source (TDS) and it is currently fixed at 10% of the interest. The tax deducted at source on FDs can range from 0% to 30% and it depends on the income tax bracket of the investor. If the total income of customer is below the minimum tax slab of 10 then he or she can claim a refund of the deducted TDS.

If you find this article helpful enough for you or if you still have some queries in your mind regarding fixed deposit then please let us know by commenting below in our comment section. We will be pleased to hear from you.

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