Most people are familiar with term deposits. They are relatively risk free and hence are quite popular among people. People tend to invest their hard-earned money in term deposits as there are few chances of losing it. Fixed Deposits and Recurring deposits are the two types of term deposits.
FDs are long term deposits and you can expect earning a good interest on. But paying taxes on the interest you earn can reduce your profitability. Therefore, you should be careful while investing in them.
FDs are when investments are done only once in the whole tenure of the deposit. If you invested in a FD then you will keep earning interest upon it. The choice of earning the interest on monthly basis or once the FD matures is completely yours. Now recurring deposits are deposits where in you keep depositing a sum on periodic basis in a given time frame. You earn an interest on the investments you make in RDs.
You are liable to pay taxes on FD if the interest you have earned exceeds Rs. 10,000.
There are Some Tips by which You can Save on taxes:
When it comes to safe investments with assured returns, fixed deposits are at the top. However, one should refrain from investing on an FD scheme blindly. Here are some common investment mistakes for any FD scheme that you need to avoid while investing :
Placing Everything in One FD
A lot of investors put their entire investment in one FD. The disadvantages of doing so include zero protection under the deposit insurance scheme for deposits exceeding Rs1 lakh. With the entire sum being locked-up in an FD, you will have to break it prematurely if you end up requiring funds for an emergency.
If you are opting for multiple FDs, not spending sufficient time and effort on research will increase investment risk. Make sure to invest in FD (Fixed Deposit) schemes of reliable banks/NBFCs where risk of default is minimal.
Improper Tenure-Related Planning
Without smart tenure planning, your cash needs cannot be fulfilled in the best manner. Your investment plans should coincide with your cash needs- this means avoiding long-term investments for short-term needs and vice-versa.
Not Considering Alternate Options
Considering only FD schemes of banks leads to losing out on many feasible investment opportunities offered by alternate options like NBFCs and even co-op societies.
Fixed deposits are financial instruments wherein you deposit money for fixed tenures to earn interest. Interest earned is more than that of a savings account. You do not need a separate account for an FD as the money can be frozen in your existing account.
FDs differ from recurring deposits as you cannot withdraw money from them before maturity without incurring penalties. If you do so, the predetermined rate of interest decreases and you might be charged penalty.
Benefits of an FD
From here you can get the more reasons why should you opt FD
One of the best ways to utilize surplus income (like business profits, salary appreciation or pension) is investing on a FD. Saving is also a safe and viable option but you cannot expect higher returns here.
An FD gives higher returns at minimal risk and the earnings can either be reinvested or used. This makes fixed deposits the ideal investment option over saving for senior citizens.
Mutual funds, shares and gold also provide high returns but they are dependent on the market conditions and hence involve a greater risk for pensioners. Fixed deposits are safer as they are not dependent on the market conditions.
Benefits of Fixed Deposits for a Retired Individual
Higher Interest Rates
Senior Citizen FD offer higher interest rates than any savings account. The interest rate is dependent on the amount and tenure of the investment. Lump sums can be split up and invested in separate FDs to earn extra benefits. Senior citizens are entitled to a higher rate of interest for FDs.
FDs are taxable when the interest earned is higher than Rs 10,000. For senior citizens without taxable income, TDS can be avoided by filing the 15G declaration form.
The above mentioned all things indicate that the Senior Citizen Fixed Deposit a Profitable Investment when you get a closer your retirement.
Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.