Understanding Lien on Fixed Deposits: Benefits, Risks & How to Avoid It

Posted on Friday, July 19th, 2024 | By IndusInd Bank

If you are looking for secure investment options, Fixed Deposits (FDs) are often a top choice for many. Steady and guaranteed returns and high interest rates make it a preferred choice. 

While the promise of guaranteed returns makes FDs an attractive option, navigating the fixed deposit rules and regulations can be daunting. Investors need help in understanding the many terms, conditions, and penalties regarding early withdrawals. 

This article aims to simplify these key points, helping you make informed decisions and get the most from your investment. 

Types of Fixed Deposits (FDs)

Customers can choose between two types of FDs based on how they want to receive the interest. 

Regular/Traditional FDs

Interest payments are made on a monthly or quarterly basis. ​​The maturity duration is from seven days to ten years. 

Reinvestment FDs

The principal amount of this FD is reinvested along with the quarterly compound interest. 

General Rules Governing India’s Fixed Deposits

It is a set of rules and regulations that define, oversee, and control fixed deposits. The Reserve Bank of India sets minimum and maximum amounts for fixed deposits. Banks also set their limits. Minimum deposit ranges from ₹ 1,000 to ₹ 10,000 and varies among banks. 

Tenure and Premature Withdrawal

Fixed deposits have set periods of up to ten years. You can withdraw early, but banks penalise and may lower the interest rate. 

Interest Rates

The monetary policy of the RBI and banks determines the interest rates on fixed deposits. These rates change over time and vary based on tenure and the type of investor. For instance, senior citizens get higher rates.  

Tax Impact

Interest earned on fixed deposits is taxed based on your tax bracket, affecting higher-income investors. However, for those looking to save tax with FD investments, banks offer tax-saver FDs. These tax-saver FDs provide tax benefits under Section 80C of the Income Tax Act. 

Nomination Facility

All FD Accounts must have a nomination facility based on RBI regulations. The simple nomination procedure is crucial. It allows for a smooth money transfer to the nominee. The Bank FD nomination facility requires a single nominee for each deposit account. A parent or legal guardian can manage a minor’s account and submit the nomination on their behalf. It is also possible to change nomination details by filling out the required form as per Banking Companies (Nomination) Rules. 

Tax Deducted at Source (TDS) on Interest Income

Tax is deducted at the source (TDS) from interest income. The TDS threshold is ₹ 40,000 for regular investors and ₹ 50,000 for senior citizens. 

Auto-renewal and Maturity Proceeds

Investors need to know about auto-renewal and maturity proceeds. The bank renews FDs at its maturity for the same term unless told otherwise. One must give advance notice to change the term or withdraw proceeds. 

Always stay updated on the new fixed deposit rules to ensure you make the best investment decisions. An FD Calculator can help to estimate your returns and make informed investment choices. 

Also read: Fixed Deposit Myths Debunked: What You Need to Know 

Eligibility Criteria for Fixed Deposits

Anyone can open an account for an FD, regardless of age; minors and senior citizens alike can apply. A depositor only needs to provide the following documents to open an FD account: 

• PAN Card 

• Aadhaar Card 

• Senior Citizen Identification Card (if applicable) 

Fixed deposits (FDs) are widely recognised for their reliability, safety, and promise of guaranteed returns, establishing them as a preferred investment option. However, investors must have a thorough grasp of the laws and guidelines governing FDs. This understanding empowers investors to navigate the FD landscape confidently and make informed decisions aligned with their financial objectives.  

Being well-informed about regulations ensures investors understand factors like minimum deposit requirements, penalties for early withdrawals, and tax implications. By staying abreast of these aspects, investors can effectively leverage FDs within their investment strategies, enhancing their financial security and achieving their long-term goals with greater certainty. 

Ready to grow your savings? Open an IndusInd Bank Fixed Deposit today and take advantage of secure, high yield returns. Start investing in your future now! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.