Fixed deposits are the most preferred and popular choice among investors across generations. With best interest rates, this long term investment ensures guaranteed returns.
What is a Fixed Deposit Account?
A deposit made in banks with a stipulated tenure is called a fixed deposit. Customers can choose the tenure ranging from 7 days to 10 years, and accordingly, the interest on the amount will be deposited to the FD account. As a financial instrument, FD ensures higher profits without being market prone.
Why are fixed deposits a viable investment tool for senior citizens?
- Guaranteed returns
- Regardless of the deposit amount, FD promises assured returns. Investors earn interest at the rates prevailing at the time of deposit. Since it is susceptible to the economic climate, profits are guaranteed.
- The returns received from FD can also be a source of stable income for senior citizens even after retirement.
2. High-interest rates
Senior citizens receive the highest FD interest rates from banks and financial institutions. Most of the banking platforms provide senior citizens with 0.25% to 0.75% higher interest rates than the regular deposit plans
3. Choose the mode of interest payment
Customers can always select the frequency of interest they wish to receive. Most of the banking platforms offer benefits on a monthly, quarterly, or yearly basis.
4. Ease of transactions
Opening the FD account is entirely hassle-free and does not require operations regularly. They also need very little documentation.
5. Tax benefits
- With recent changes from the Income-tax Act, senior citizens are not charged TDS (Tax deducted at source) if the interests earned from FD, savings account, and recurring deposits are not more than Rs. 50,000.
- If the interest earned is more than Rs. 50,000, then banks will charge 10% on the entire interest and 20% if the investor has not provided PAN card details.
- However, banks calculate TDS when interest is due for deposit and not when they pay it. Thus the tax on interest should be calculated annually and not at the time of maturity
- To assist investors, many banking platforms like PNB Housing offer FD rate calculators on their websites to calculate the maturity amount.
6. Loan against Fixed Deposit
While maintaining their FD status, investors can always avail of a loan against their fixed deposits. E.g., PNB Housing offers a loan facility of 75% of the total deposit amount across all PNB branches. The interest rates offered for these loans are better than regular loans.
7. Premature withdrawal
During immediate financial requirements, customers can also opt to liquidate their FD accounts. As per RBI guidelines, banks are permissible to repay the amount before maturity. However, customers might be susceptible to closure penalties imposed by the bank.
8. Join fixed deposits
Customers can also open fixed deposit accounts as a joint venture with their spouses or children. However, during an event of premature withdrawal, all FD holders will be required to sign the respective application.