Finance

5 fact guide to understanding your fixed deposit

Ask any individual about their most preferred choice of investment option and everyone will indicate the fixed deposit. While there are plenty of reasons as to why this is a preferable option for investments, as compared to others, this is the least risky.

Additionally, you only need to put in a lump sum amount for a fixed time and earn interest during that tenure. In order to make the most out of your investment in this option, you will need to understand the factors behind it. Given below are a few important factors you can consider with this termed deposit:

Fixed returns: When investing in this termed deposit, your funds are parked in a particular bank deposit for a fixed period. The bank or financial institute where you are investing your funds in, will provide you with a fixed interest in exchange for holding your funds. This is the reason why the deposit is termed as a safe option. You will earn profit from this investment, through the form of interest. Depending on your profile or age, you can earn a higher interest.

Tenure of your choice: With this term deposit, there is a variety of tenure which is available as per your choice. This term can last between 6 months to 10 years depending on your will. The longer you keep your tenure, the more interest you will earn.
Interest payout: The deposit of the interest earned can also be decided on your desire. This can be done when the deposit matures or even at regular intervals. Normally a bank or financial institute will offer a deposit of interest at quarterly, half-yearly or annual intervals.

Loan against your fixed deposit: When you are in immediate need for funds, there is no need to break your fixed deposit. In this case, you can always take a loan against the termed deposit and use it to satisfy your needs. However, the amount of funds that you withdraw is limited. It also depends on your financial profile and your relationship with the bank. Additionally, you may also need to pay interest on the funds that is borrowed.

Tax savings: Plenty of banks and financial institutes provide tax saving schemes along with fixed deposit services. In this case, the total taxable income that you earn is reduced by the amount you save in this deposit. The depositor must ensure that the tenure of the deposit is in between 5 years to 10 years. The maximum amount you are allowed to invest in such deposit for tax purposes is also fixed at 10 lakhs. However, the interest that you earn in this case will be taxable.

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