When choosing a bank for a fixed deposit, shopping around can make all the difference. Finding the bank with the highest FD interest rate can fetch hundreds or even thousands of extra money over time.
Things to know about FD interest rates when investing in India
While selecting a bank to make a fixed deposit, the rate of interest is often the most important factor and therefore you should opt for a bank that offers the highest FD rates. While selecting a bank, do evaluate the risks involved – for instance, cooperative banks are riskier than PSU banks and private banks.
As your money with each bank (all branches taken together) is insured only up to Rs 5 lakh in case the bank fails, it is not advisable to put all your money in one bank or check the CRISIL rating of the bank. You can make fixed deposits in the name of other family members as insurance cover is available to each person. You could consider making a FD in the name of older family members since some banks offer a higher rate of interest to senior citizens.
In addition to the stated maximum rate of interest on your fixed deposit, you need to evaluate the frequency with which the interest is credited on your fixed deposit. More frequent credit of interest will result in a higher effective rate of interest on your already high interest fixed deposit.
Tenure of FD
As a prudent financial planning practice, you should map your investments with a specific financial goal. All banks may not offer you a fixed deposit for your preferred tenure, so search for a bank that can meet this criterion and also offers the highest rate of interest on the fixed deposit for your chosen tenure.
The minimum amount with which you can make a bank fixed deposit differs across banks. Select a bank that allows an amount that is in tune with your budget. Since banks generally charge a penalty for premature withdrawal, try not to deposit a large amount as you may need part of the money before your FD matures.
You also should consider the loan amount available against your bank fixed deposit as well as the interest charged by the bank on a loan against the fixed deposit so that you can meet any emergency situation without having to break your FD.
Associated fees with FDs in India
Banks generally do not charge any fee for maintaining a fixed deposit but they do enforce a penalty for premature withdrawal which varies from bank to bank. You need to take into account this penalty as well as any charges levied by the bank while making a fixed deposit. This is more important in case you are making a fixed deposit for your emergency fund as you may need to withdraw the money during the tenure.
Tax implications on FDs
The interest received by you on your fixed deposit is taxable on accrual basis or receipt basis. You may opt for either depending on the composition of your income. No tax benefits are available for interest received on bank fixed deposits unless you are a senior citizen who is entitled to claim deduction of up to Rs 50,000 under Section 80TTB along with other interest received from banks, post office, and cooperative banks. Depending on the tax slab applicable to your family members, you can distribute the FD amount to be made in different names.
Banks are required to deduct tax at source on interest credited on fixed deposits if the aggregate of interest to be credited exceeds Rs 40,000 in a year for all deposits taken together. So, you may have to decide the amount of fixed deposits to be made with a particular bank based on your income tax slab to ensure that your money does not get blocked in TDS.
Why consider an IDFC FIRST Bank fixed deposit?
IDFC FIRST Bank fixed deposits have some unique features and offers some of the best FD rates in India. The rate of interest is higher compared to other banks, and no penalty is levied for early withdrawal if the deposit is made in the name of senior citizens – who also enjoy 0.5% higher interest. IDFC FIRST Bank fixed deposits also offer the facility of monthly or quarterly interest payout. In case you do not want regular payouts, your interest gets credited quarterly to your FD, thereby allowing you to get #MoreFromYourBank through the power of compounding.