5 investments tips on FD
New Delhi : The prestigious State Bank of India has lately reduced interest rates on fixed deposits for a short period. It is likely that some other banks can reduce the FD interest rates, very soon. Now, if you are planning to invest in fixed deposits, then you should also know about some of the essential things related to it.
5 Things to know about Fixed Deposits on Banks (Private and Government)
1) Not fully safe FD
While storing money on FD, know that the money forced on it is not completely sealed. Corporate deposits are unsecured loans, which have no guarantee. In case the Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees a maximum of one lakh rupees for a customer and this rule is applicable to every branch of banks. In such a case, if you have to invest 3 to 4 lakh rupees, then it is better to invest this amount in three or four places in different banks. There will be two types of benefits. The first thing is that the full amount of your entire money will be safe and the other advantage is that if you have to break your FD in the emergency after having an FD then you can break any one FD and work out. This will reduce the loss due to breaking the FD. That is, the penalties you have to give before the time to be handed down, it will only look at the FD which you are breaking ahead of time. The rest will remain invested at the same interest rate and will continue to grow.
2) Make multiple FD’s of different durations
If you have locked huge amount of money at a lower interest rate for long periods of time, then there remains a doubt in the FD because interest rates continue to decrease. To avoid this, make a staircase of such fixed deposits whose duration is different. For instance, if you have four lakh rupees to invest, then divide this amount into four deposits of 1 lakh rupees each. Then fix them for 1, 2, 3 and 4 years. When the 1 year FD is mature, then invest it again in the 4 year FD. After this, the case of high rate of interest will be balanced after a certain time. There will be an additional advantage of this process. You will continue to receive cash because after one year your FD will continue to be mature.
3) Penalty on breaking FD before time
Before making FD, make sure you have chosen the term right. In the beginning, if you have invested for a long period of time and in the meantime you have to break the FD, then you may have to pay penalty. Suppose your bank is offering 9% return on a 1 year FD and returns 9.5% on a five year FD. In such a case, if you feel that you may need money before five years, avoid making money in long-term FD. If you break five years of FD after one year, then you will get the interest rate as much as one year's FD. Besides, penalties can also be applied for withdrawal before time. This would mean that you will get even less interest rate than you got for a half-percent gain, which you were getting on a 1 year FD.
4) FD will be taxable
You should know that whatever interest you get on the FD is completely taxable. If interest in one year increases by more than Rs 10,000, then the bank or corporate house will deduct 10.3% on the tax source. You will get the money only after deducting this tax. Your liability for tax does not end here. If you are in Higher Income Group (annual income more than 5 lakh), then you have to pay a higher tax on this income. If TDS has not been deducted then you should show your income from bonds and FDs in your tax return. Remember, tax on interest is levied on auction basis. You have to pay taxes every year. On the other hand if your income is less than that income, which does not seem to be tax, then you can deposit a return by refunding the amount which has been deducted as TDS. To avoid TDS, you should fill the form 15G to declare that your income is less than the taxable limit. The elderly should fill Form 15H.
5) Your child/spouse earnings in your income
Making FD in the name of a child or a spouse, you will not be acceptable if you avoid tax. If you transfer money to your child or spouse, you will not be tax liability, but if this money is invested in his name then the income from him will be added to your income. Then there will be tax on the basic of deposit money. If a person deposits money in the FD with the name of his spouse, then the income from him will be considered as his income. In case of minor children under the age of 18, the rules are slightly different. The income will be correlated to his income from the parent or father who earns more. However a child gets a discount of 1500 rupees annually. This can happen only up to two children.