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Eight Things To Consider Before Opening An FD Account

Any investment requires an investor to have in-depth knowledge of the benefits, returns, policies, tenure, rate of interest, etc. It is wise to invest smartly at higher rates of interest and gain better returns. Choosing the right source and plan of investment is essential for the future. It gives a clear definition of how and where to save and spend. Investments are quite economical for the investor as well as the family.

Many people prefer opening a fixed deposit account as it is safe. The return earned from the bank is fixed, and the investor knows of it at the time of investment. Also known as term deposits, the process involves the deposit of money with the bank for a pre-determined period.

Following are the things to consider before opening this account:

  1. Documentation – 

Those who have a savings account are the only ones eligible to open a term deposit account. Some banks allow customers even if they do not have a savings account in that bank. However, customers have to undergo a Know Your Customer (KYC) process in case they do not have a savings account. The documents required are self-attested copies of ID proof and address (PAN card, Aadhaar card, election card, etc.) along with passport size photographs. Original documents are required for verification.

  1. Investment amount – 

The minimum amount required for opening FD account varies from bank to bank. But there is no limitation to the maximum amount of investment.

  1. Tenure – 

The tenure offered also differs according to the bank, with the minimum period being seven days and the maximum tenure of ten years. The customer is free to choose the period of the deposit.

  1. Interest payment – 

The rate of interest depends on the period of investment. Senior citizens get a higher interest rate and many other benefits.

  1. Taxation – 

The interest rate received on the amount of deposit is fully taxable according to the income tax slab of the investor. TDS amount is deducted by the bank if the interest paid exceeds INR 10,000 in a financial year, as per the tax laws.

  1. Premature withdrawal – 

In case the investor withdraws the deposit before the maturity period, banks ask for a penalty. Before opting for such deposits, the investor should check the rules and rates of premature withdrawals with the bank.

  1. Loan and nomination facility –

These deposits can be used as collaterals for obtaining loans with banks charging a certain percentage on the principal deposit. They also support nominations.

  1. Automatic renewal:

Banks renew the FD scheme automatically upon its maturity with the same interest rate and tenure. However, all don't need to agree with the policy.

Any investment requires an investor to have in-depth knowledge of the benefits, returns, policies, tenure, rate of interest, etc. It is wise to invest smartly at higher rates of interest and gain better returns. Choosing the right source and plan of investment is essential for the future. It gives a clear definition of how and where to save and spend. Investments are quite economical for the investor as well as the family.

Many people prefer opening a fixed deposit account as it is safe. The return earned from the bank is fixed, and the investor knows of it at the time of investment. Also known as term deposits, the process involves the deposit of money with the bank for a pre-determined period.

Following are the things to consider before opening this account:

  1. Documentation – 

Those who have a savings account are the only ones eligible to open a term deposit account. Some banks allow customers even if they do not have a savings account in that bank. However, customers have to undergo a Know Your Customer (KYC) process in case they do not have a savings account. The documents required are self-attested copies of ID proof and address (PAN card, Aadhaar card, election card, etc.) along with passport size photographs. Original documents are required for verification.

  1. Investment amount – 

The minimum amount required for opening FD account varies from bank to bank. But there is no limitation to the maximum amount of investment.

  1. Tenure – 

The tenure offered also differs according to the bank, with the minimum period being seven days and the maximum tenure of ten years. The customer is free to choose the period of the deposit.

  1. Interest payment – 

The rate of interest depends on the period of investment. Senior citizens get a higher interest rate and many other benefits.

  1. Taxation – 

The interest rate received on the amount of deposit is fully taxable according to the income tax slab of the investor. TDS amount is deducted by the bank if the interest paid exceeds INR 10,000 in a financial year, as per the tax laws.

  1. Premature withdrawal – 

In case the investor withdraws the deposit before the maturity period, banks ask for a penalty. Before opting for such deposits, the investor should check the rules and rates of premature withdrawals with the bank.

  1. Loan and nomination facility –

These deposits can be used as collaterals for obtaining loans with banks charging a certain percentage on the principal deposit. They also support nominations.

  1. Automatic renewal:

Banks renew the FD scheme automatically upon its maturity with the same interest rate and tenure. However, all don't need to agree with the policy.

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