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Benefits of Fixed Deposits

Highlights

  • What benefits do fixed deposits provide?
  • These include stable returns, liquidity, tax benefits, etc - Read this post to know these benefits in detail

If you want to invest your hard-earned money in a financial instrument where there is no risk and assured interest is provided, a Fixed Deposit (FD) can be a good choice for you. FDs are the term deposits where you keep your money for a certain period and withdraw it afterward. Banks pay the interest to depositors at 4-7% per annum on fixed deposits these days. Investing in FD means you are free from market risk and can yield a fixed return at maturity. But the benefit of FDs is not restricted to just fixed income, it is more than that. Liquidity, loan facility and several other benefits of FDs are elaborated in this post. Let’s read further to know all.

FD @ 8.00%* Rate

Stable Returns

Your FD is free from market fluctuations. Any kind of movement in the market does not affect your FD returns. Hence, it is considered a stable income option for investors. Another fact is that fixed deposit interest rates are fixed in advance. That means the investor can know how much income he/she will have at a certain point of time.

Liquidity Facility

Fixed Deposits are liquid investments that can be withdrawn anytime when you need it. In the case of an emergency, you can withdraw money even before the maturity. However, this will amount to premature withdrawal, which will lead to a penalty interest of 1-2% on your earnings as applicable on the date of withdrawal. The premature withdrawal charge of banks and NBFCs are determined according to the FD tenure. Check out the table below to know the premature withdrawal charges of top banks in India.

BankPremature Withdrawal Charge
State Bank of India (SBI)
  • 0.50% for FD up to INR 5 lakh
  • 1.00% for FD above INR 5 lakh
HDFC Bank1% on the applicable rate
ICICI Bank
  • 0.50% if the FD tenure is less than 1 year
  • 1.00% if the FD tenure is more than 1 year
RBL Bank1.00% of the actual FD interest rate
Kotak Mahindra Bank
  • No FD interest will be paid if premature withdrawal is made within 7 days of FD booking.
  • 0.50% penalty would be levied if FD is booked for 181 days and above.
Standard Chartered Bank1% penalty as per the payable interest for the chosen FD tenure
YES BANK0.25% penalty for all FD tenures, except the one for a tenure of 7-181 days
Punjab National Bank (PNB)1% penalty on the contractual rate
Union Bank of India
  • No penalty if term deposit is below INR 1 Crore
  • Otherwise, 1% penalty on term deposits above INR 1 Crore
Bank of Baroda
  • No penalty if the term deposit is below INR 5 lakh and maintained for a minimum of 12 months.
  • Otherwise, a 1% penalty on the applicable FD rate.
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Loan Facility Against FD

Fixed Deposits are a type of investment option against which you can take a loan. Many financial institutions and banks offer loans to the customers, where they can borrow up to 90% of their deposit amount and continue the FD without any break. The FD loan interest rates are affordable and will depend on your current FD rates. Check out the table below for more information on the loan against FD.

BankLoan AmountMaximum Loan Against FD Interest Rate
SBI90% of the FD Value1% above 2.90% - 6.20%
HDFC Bank90% of the FD Value2% above 2.50% - 6.25%
ICICI Bank90% of the FD Value2%-3% above 2.50% - 6.25%
IDBI Bank90% of the FD ValueCompetitive rates
RBL Bank90% of the FD Value0.50% above 3.50% - 7.65%
YES BANK90% of the FD Value1% above 5.00% - 7.75%

Different Maturity Instructions on Fixed Deposits

A fixed deposit is booked for a definite period after which it matures. The FD can be withdrawn on maturity, reinvested after maturity, or can be withdrawn before maturity. Check out below the various fixed deposit maturity instructions.

FD Closure On Maturity: To withdraw your deposit amount, you can either visit the bank branch or go to its official website. For offline closure of a fixed deposit, you need to surrender the Fixed Deposit certificate at the branch office with the signature of all holders in it if any. An online closure can be done through the bank or post office official website.

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When you don’t notify the bank of FD maturity, the following actions will be taken on account of it.

  • Auto-renewal: The bank will renew your FD for one year or the same period of your FD tenure. And the FD rate will remain unchanged.
  • Auto liquidation of FD: The bank will transfer the FD amount to your linked savings account.

Note: Your FD Certificate will have all the information.

FD Closure Before the Maturity Date: You can make a premature withdrawal on your FD, but it may come with some conditions. First, the bank will charge a penalty on your earned interest, this may vary from one bank to another. If you need money for a financial emergency, the bank will provide you these two options.

  • Partial Withdrawals: Instead of a full withdrawal, if you do a partial withdrawal, the FD interest on the remaining deposit amount will be the same for the period.
  • Full Closure & FD Reinvestment: When you do a premature FD closure, the bank will pay the interest only for the period your FD remains. Suppose you have an FD for a tenure of 10 years and you close it in 4 years, the bank will pay for these 4 years only.

Note: For these facilities, you need to submit a duly filled form at the bank branch or online if available.

Fixed Deposits for Senior Citizens

Fixed deposits have always been the traditional investment option in India. At present, banks pay additional interest of 0.50% to senior citizens on their FD investments. In such a situation, FD can become a good source of income for senior citizens. Currently, the FD interest rates in the largest public sector bank i.e. SBI ranges from 2.90% - 6.20% per annum at different maturity levels. Whereas, the interest rate for senior citizens is up to 6.20% per annum. Apart from the banks, senior citizens can also invest in post office FDs.

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Tax Benefits

There’s one tax-saver fixed deposit that comes with a lock-in period of 5 years, which means you can’t withdraw before the said period. You can invest upto INR 1.5 lakh in a financial year and get tax deductions on the same. The tax deductions can be given on a maximum deposit of INR 1.5 lakh in a year under Section 80C of the Income Tax Act. These deductions will be subtracted from your gross annual income. The sum so arrived is the one on which the income tax will apply. This way, the tax liability can be less than what it could be without any deduction.

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