Standard FDs offer deposit tenures ranging from 7 days to several months, or years. You can choose to invest for a specific number of days, like 390 days or 555 days as set by the bank.
These term deposits earn a slightly higher rate of interest than regular Fixed Deposits. If you can afford to have your funds locked down for these specific periods, you can open these Special FDs, and earn more at maturity.
Tax-Saving Fixed Deposits
These are generally longer term Fixed Deposits, where your money is locked in for 5 years. You’ll have to wait till maturity of the deposit to access the invested amount. However, the principal is exempted from taxation.
The tax exemption limit for these FDs are for a maximum of Rs.1.5 lakhs. This principal amount can be claimed for tax deduction under Section 80C of the Income Tax Act. The savings on taxation of the invested amount are significant.
You can create more than one ‘tax saver’ FD across banks offering this FD plan, and save even more.
Income Plan Fixed Deposits
Fixed Deposits pay interest on the invested amount at regular intervals. For those with no other source of income—or very low income from other sources—these FDs can be used to create a supplementary income stream.
You can choose to have the interest payments credited to your savings account monthly or quarterly, to create an assured income stream.
Cumulative Fixed Deposit
If you do not need the income, you can choose to reinvest the interest back into your FD.
Each interest payment adds to the principal amount in the FD and the next interest payment is calculated for the increased amount, earning you more interest each time. At maturity, you can realize a larger amount than in a normal FD, where you regularly withdraw the interest payments.
Corporate Fixed Deposit plans
Many non-finance business organizations offer Fixed Deposit schemes to investors, in order to raise capital. These are not regulated by the RBI, and are thus a bit more risky. Still, they offer more returns than conventional FD plans.
You can still choose safe options, by looking at the credit ratings given to these companies and their FD plans. Reputed credit rating agencies like CRISIL, ICRA, and Care provide credit ratings, helping you choose good investment options.
Choose the options with the highest credit rating, and your money will be relatively safe, giving you more returns on your invested amounts.
Flexi Fixed Deposits
This type of FD lets you utilize excess funds in your savings account to earn a higher interest. You can specify a minimum limit that remains in your savings account. Any excess amount is then used to earn higher returns through the FD.
You can use the money in your FD, but that’s not all. These funds can also be drawn automatically by the bank if it needs excess funds to honor a payment due on your savings account, like a cheque that needs more than the balance in your account.
This involves a Sweep In—money from the FD is ‘swept’ back to your savings account to honor a payment.
If your deposit is in excess of the minimum you have specified, a Sweep Out is done. The excess amount is swept into the linked FD account, and earns you higher interests than those on the Savings Accounts by the bank.
Fixed Deposit Schemes – Where to Invest
Examine the offers, assess the risks and choose the options that best suit your needs. You can invest in more than one FD to spread your investment across institutions—and across different FD plans. These will earn you an assured income, as the interest on FD is agreed upon at the time of deposit and will not be affected by market fluctuations.
So, which one should you choose—FD or life insurance?
Invest in insurance policies the amount that you can afford to spare over a long period of time. Of the remaining funds you can afford to invest, choose good FD plans. Pick safer investment options, and choose the longest tenure for each deposit that you can afford—these earn more.
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