Fixed Deposits are the safest investment avenue for many investors as they help them secure their hard earned money for a longer time by giving low-risk returns on your money than conventional savings accounts.
Fixed Deposits, as the name suggests, are a financial instrument for people who want to deposit their money regularly for a fixed duration in banks. The investment period is fixed, and may range from 15 days to 5 years and longer. The main advantage of fixed deposit is that you can earn a higher rate of interest on your money than you do on saving accounts.
After maturity, the investor gets an amount that is equal to the principal amount plus the interest earned on the principal over the entire duration of fixed deposit. However interest rate on fixed deposit varies across banks.
For a fixed deposit tenure of six months or above, banks calculate interest on a quarterly basis. Here the compounding benefit or interest for re-investment is calculated on a quarterly basis.
In all the Indian banks, fixed deposits are subjected to the Indian income tax department regulations in force. For this regulations, banks deduct tax at source from your fixed deposits and issue you a TDS certificate. However, Income tax department stated that an investment in FD up to a maximum of Rs.1lakh for 5 years are eligible for tax deductions under section 80C of income tax act.
Thus investing in fixed deposits can help you build wealth over a period of time. The other advantages of fixed deposits are, you can avail loans; flexibility and convenience in financial transactions.