If you are saver, who doesn’t like the risk of the market or the business, a fixed deposit is offered by the bank or post office are the most reliable for you. The greatest advantage of a fixed deposit is that you can fix your sum for a time period of your choice.
In case you choose to make a fixed deposit in bank:
The time period can be a minimum of 7 days to a maximum of 10 years. However, the rate of interest will vary as per the time period. For example, if you are investing a sum of less than 15 lakhs on fixed deposit, you might earn an interest of 3.50 % for a period of 7 days. However, if the deposit is for a period of 1 year, the interest rate earned might be 9.00 %. The only disadvantage of the fixed deposit is that the interest earned is taxable. Banks also gives you the facility to reinvest your both you interest and principal. This is for your chosen time period or roll over only your principal amount for a certain period. The flexibility to choose from the various options is a convenience here.
So, if you planning to make a fixed deposit for a shorter period or for a higher rate of interest, it is better to choose a bank instead of the post office. One advantage is that if you have an online banking facility with the associated bank, you can make your deposit from anywhere by availing the net banking facility. You need not physically go to the bank and fulfill the formalities. However, if you plan to make a fixed deposit for a longer period with the bank, it is better to look for some other form of deposits which gives you a consistent rate of interest for all the years or are at least tax free. The fixed deposit rate offered by a bank might change on a yearly basis.
Also read: Investing in Recurring deposits in India
In case of a deposit made in a post office:
The fixed deposit is termed as time deposit. Here, you can invest your fixed amount but for a minimum period of one year up to a maximum of 5 years. The only good thing is that the interest compounded yearly can be drawn on a yearly basis or you can opt for automatic credit of your interest amount into your Savings Account. Post office usually offers a lesser rate of interest than most of the private banks. The fixed deposit rate offered by a post office might also change on a yearly basis and are taxable. Post offices are best suitable for places where the accessibility of the bank is not there.
So, if you have idle money, it is just earning the normal rate of interest of 4% yearly. Invest it in fixed deposit for a minimum period of 6 months and earn higher interest.
Note: Remember to submit the tax waiver forms 15 G or 15 H. This will help you to avoid tax deducted at source for your investment. It is applicable only if your income is below the exemption limit.
The exemption limit is Rs 2 lakh for individuals below 60 years and HUFs. It is Rs 2.5 lakh for senior citizens, and Rs 5 lakh for very senior citizens above 80 years.
Form 15G is to be used by individuals below 60 years, HUFs and trusts, etc.
Form 15H is to be used by senior citizens and those above 80 years.
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