Fixed Deposits – R. Shiva shankar Page 1

Fixed Deposits Are you looking for the safest place to invest…..???

Most of the time people prefer Fixed Deposits (FD) when it comes to safer investment avenues. The only disadvantage of FD is that unlike other investments, it will not give you Tax benefit instead it will make you to pay extra tax on the returns generated.

Fixed Deposits are kind of deposits, which pre plans a length of time for which the depositor decides to keep the money with the Bank and the rate of interest payable to the depositor is decided by this tenure. Rate of interest differs from Bank to Bank. Normally, the rate is highest for deposits for 3-5 years. This, however, does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn before the period is over. However, the amount of interest payable to the depositor, in such cases goes down.

Every Banks offer fixed deposit schemes with a wide range of tenures for periods from 7 days to 10 years.

Therefore, the depositors are supposed to continue such Fixed Deposits for the duration of time for which the depositor decides to keep the money with the bank. However, in case of need, the depositor can ask for closing the fixed deposit in advance by paying a penalty. Soon some banks have even introduced variable interest fixed deposits. The rate of interest in such deposits will keep on varying with the prevalent market rates i.e. it will go up if market interest rate goes and it will come down if the market rates fall.

The rate of interest for Fixed Deposits (FD) differs from bank to bank. When the interest rates were regulated by RBI all banks used to have the same interest rate structure. The present trends indicate that private sector and foreign banks offer higher rate of interest.

Opening a Fixed Deposit

While opening a fixed deposit account, the bank must issue a fixed deposit that should state the following things on its face:

Date of issue Due date Amount Rate of interest Period of deposit Amount at maturity

Tips to remember while going for a Fixed deposit Following are the things to keep in mind while opting a Fixed Deposit.

Decide in advance, the period for which you are going to invest. Shop around for the best rate of interest available. Avoid Banks which do not have a long history If you need a part of the money before your deposit matures, seek your banker's advice whether taking an

overdraft will be beneficial You need to be very careful while entrusting your money to finance companies which promise high rates of

interest.

Popularity of fixed deposits is diminishing due to constant decrease in fixed deposit interest rates. It got a boost when the Indian government announced in 2006 that, bank fixed deposits by an individual/HUF for 5 years and up to Rs. 100000/- will be eligible for exemption. This exemption would be under section 80C of the income tax act 1961, provided the investor makes necessary declarations. This is the same section where we get exemption for life insurance policies, Mutual Funds, etc.

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The fixed deposits which were giving interest rates up to 14% or more a decade back have recently slump to around 7%. However, as soon as the announcement from income tax department came, fixed deposit again started attracting more and more investments.

Tax Saving Fixed Deposit u/s 80C

Fixed Deposits also offer Tax benefit under Section 80C. The following are the key points regarding the tax saving fixed deposit under section 80C:

1. Tax saving fixed deposit has the lock-in period of 5 years. You will not be able to take the money before five years. 2. The interest rates for this scheme will differ from bank to bank. 3. Only banks are providing Tax savings fixed deposits. You cannot open it with company fixed deposit product. 4. Minimum deposit should be Rs.100. 5. Maximum of Rs.100000 is exempted u/s 80c for one financial year. 6. Nomination Facility available. 7. In this scheme you will not be getting many other benefits which is available in normal fixed deposit, Such as; · Partial/Premature withdrawal · Sweep-in · Over Draft facility 8. In case of joint account, the deductions u/s 80c will be allowed only for the first account holder. 9. Interest income from this is taxable.

Features of Tax Saver Fixed Deposits

Tax Saving Fixed Deposits can be purchased for a minimum amount of Rs. 100, and then in multiples of Rs. 100. The maximum amount eligible for tax deduction is Rs. 100,000 for a financial year. One of the major drawbacks of tax saving Fixed Deposit is that your amount will be locked for 5 year period.

Investment made in Tax Saving FDs cannot be withdrawn nor can it be pledged for any reason during the

tenure. Though the interest rates are varying very frequently and can change in the future, the currently prevailing interest rates on a tax saver fixed deposit is around 8% to 8.75%.

This fixed deposit cannot be linked to a savings account and the surplus funds available under the savings

account cannot be automatically invested in this fixed deposit. More over there is no overdraft facility available on the tax saver fixed deposit. As this instrument of saving money is special due to its tax saving status, normally banks do not extend relationship benefits on the tax saver fixed deposit.

Anyone who is an Indian resident or Hindu undivided families (HUF) can apply for a 5 year tax saving fixed

deposit.

FIXED DEPOSIT INTEREST RATE TABLE Bank Name

Min. Amount 14 days

15 – 30 days

31 – 60 days

61 90 days

91 – 179 days

180 – 364 days

Development Credit Bank 10,000 3 3.75 4.75 4.75 5.5 6.5 Bank of Rajasthan - Fixed Deposit Scheme 100 NA 3.5 4.25 4.25 5.5 6.25

Bank of Rajasthan - Sugam Jama Yojana (SJY) 10,000 NA NA NA NA 5.5 6.25

Canara Bank 1,000 NA 3 4.25 4.25 5.25 6

ICICI Bank - Re-investment 10,000 NA 3.5 3.5 3.5 5.25 6 ICICI Bank - Traditional Fixed Deposits 10,000 NA 3.5 3.5 3.5 5.25 6

ING Vysya 1,000 3 3.25 3.5 4.5 5.25 5.75

Axis Bank 10,000 NA 3 3.5 4 5 6 Bank of Baroda - Term Deposits 100 2.5 3 4 4 5 5.5

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Bank of India - Fixed Term Deposit 10,000 NA 2.75 4 4 5 6.5 Canara Bank - Kamadhenu Deposit 1,000 NA NA NA NA 5 5.5 Corporation Bank - Continuous Deposit 100 NA 3 4 4 5 6 Corporation Bank - Fixed Deposit 100 NA 3 4 4 5 6

Oriental Bank of Commerce 100 2 2.75 4 4 5 5.75 Dena Bank - Fixed Deposit Scheme 100 NA 2.75 3.75 3.75 4.75 5.5

SBI 1,000 NA 2.5 3.5 3.5 4.75 5.25 Syndicate Bank - Fixed Deposit 1,000 NA 2.5 3.5 3.5 4.75 5.5 Syndicate Bank - Suvidha Deposit 1,000 NA 2.5 3.5 3.5 4.75 5.5 United Bank of India - Re investment Plans 1,000 NA 3 4 4 4.75 5.5

United Bank - Fixed Deposits 100 NA 3 4 4 4.75 5.5 State Bank of Indore - Special Term Deposit 100 NA 2.5 3.5 3.5 4.75 5.5 State Bank of Indore - Fixed Deposits 1,000 NA 2.5 3.5 3.5 4.75 5.5

HDFC Bank 10,000 2.25 3 3.5 3.75 4.5 5.75

Kotak Bank 10,000 NA 2.75 3.5 3.5 4.5 5.75

Union Bank - Flexi Deposit 10,000 NA NA 4 4 4.5 5.25

Indian Bank - Fixed Deposits 100 3.5 3.5 4 4 4.25 5.5 Indian Overseas Bank - Fixed Deposits 100 2.5 3 3.5 3.5 4 6

Indian Overseas Bank - Reinvestment Deposit 1,000 2.5 3 3.5 3.5 4 6 Bank of India - Double Benefit 10,000 NA NA NA NA NA 6.5

Bank of Maharashtra - Cumulative Deposit Scheme 100 NA NA NA NA NA 5.5

Central Bank of India - Money Multiplier 100 NA NA NA NA NA 6.25 Corporation Bank - Money Flex 5,000 NA NA NA NA NA 6 Corporation Bank - Kshemanidhi Cash Certificate 100 NA NA NA NA NA 6 Dena Bank - Samruddhi Deposit Scheme 100 NA NA NA NA NA 5.5 Indian Bank - Reinvestment Plan 100 NA NA NA NA NA 5.5 ING Vysya - Akshaya Deposits 10,000 NA NA NA NA NA 5.75 J&K Bank - Millennium Deposit 1,000 NA NA NA NA NA 5.75 Bank of Rajasthan - Aravali Deposit Scheme 2,000 NA NA NA NA NA 6.25 Union Bank - Deposit reinvestment certificate 500 NA NA NA NA NA 5.25

Updated as on 10 June, 2010. The Interest Rates given above are indicative in nature. It is based on market research conducted by the ApnaPaisa Research Bureau.