Is there anything about a fixed deposit other than stable and substantial FD interest rates and partial and premature withdrawals you don’t know about? The answer will likely surprise you! A staple financial instrument for most Indians, fixed deposits offer other things in addition to what you already know.
There’s more than what meets the eye. And that may surprise you. Here are the 4 surprising facts about fixed deposits you may not know until now.
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1. All FDs are Insured
Are you aware that each fixed deposit is insured for a maximum of Rs. 5 lakhs (principal + interest) by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This means if a financial institution is unable to deliver on its FD contract, you are liable to receive up to Rs. 5 lakhs per FD.
For example, if you start a fixed deposit with a principal amount of Rs. 4,95,000, which accrued an FD interest worth Rs. 4,000, the DICGC will insure this FD for a total of Rs. 4,99,000. This insurance is equivalent to a sovereign guarantee and acts as an extra safety layer for FD investors. You don’t individually pay anything to get your FDs insured.
2. You Can Take a Loan Against Your FD
Also called an overdraft facility, an FD acts as collateral for any future loan you require. Banks usually give out loans against fixed deposits at a relatively low-interest rate. Taking a loan against your fixed deposit is affordable, and you don’t break your FD. Instead, you continue earning a fixed interest return on it, even as you repay your FD-linked loan.
3. Senior Citizens Enjoy Higher FD Interest Rates
Senior citizens almost always earn higher interest rates on fixed deposits. This makes FDs a lucrative choice for earning a steady income post-retirement. Senior citizens can create various fixed deposits and opt for monthly or annual interest payouts to continue leading a comfortable life.
4. Save on Taxes
You can invest in tax-saving FDs and claim a tax rebate of up to Rs. 1.5 lakhs per annum. Such fixed deposits have a lock-in period of 5 years, after which you can fully withdraw the amount or wait for maturity.
Now, you may know of tax-saving FDs, but do you know that senior citizens can claim an additional tax exemption of up to Rs. 50,000 on these fixed deposits annually? This is if their annual income is below Rs. 2.5 lakhs per annum, including FD interest rates.
In such a case, they can submit Form 15G/H and claim a tax exemption of Rs. 50,000 in addition to rebates claimed on 1.5 lakh rupees under Section 80C.
Time to Open an FD?
If you are planning on opening a fixed deposit account, scout a bank that provides high-interest rates in exchange for a tenure that suits you. Also, opt for a bank that boasts a robust online banking facility. Such institutions have the option of opening a fixed deposit account online, which lends a tonne of convenience to investors.