Fixed deposits in banks in India Banks in India Home
In India most people invest their savings in fixed deposits with banks since they are one of safest forms of investment (for nationalized banks) and give guaranteed returns. A few years ago, the minimum duration for fixed deposits was 30 days, now it has been reduced to 15 days.
From August 2006, long term fixed deposits in commercial banks for period of more than 5 years are eligible for tax deduction under Section 80C from the total income. The maximum amount that can be invested in one year is Rs 1 lakh. However , these fixed deposits have a lock in period of 5 years and cannot be encashed prematurely, unlike other fixed deposits of a shorter duration. The depositor's Permanent Account Number (PAN) is required for opening the account. IDBI Suvidha Tax Saving Fixed Deposit was the fixed deposit meeting the requirements and offers an interest rate of 8.5%.
For private banks like HDFC bank, you can conveniently open a fixed deposit through internet banking and the amount is instantaneously debited from your account. The fixed deposit certificate is sent by post separately. However, to close the fixed deposit or break it, you have to visit the branch and submit the signed certificate. The amount is credited at the end of the day. ICICI bank is now offering fixed deposits with a free ATM FD debit card.
Before opening a large fixed deposit, it is important to check the financial stability of the bank. For scheduled banks, deposits upto Rs 1 lakh are insured against loss. If a private or co-operative bank closes down, you could lose money if you have deposited more than Rs 1 Lakh with the bank. Since fixed deposits with co-operative banks are riskier, they offer a higher interest rate.
In most nationalized and co-operative banks, to make a fixed deposit, you have to fill a form to open a fixed deposit. This is very time consuming, since you have to enter the same details repeatedly. Some banks will directly debit your account, but for other banks, you have to issue a cheque. The banks usually take 1-2 day to give you the actual fixed deposit receipt, they will give a temporary acknowledgement immediately. For long term deposits , (more than 1 year ), many banks offer a fixed deposit scheme where your interest will be compounded quarterly.
When the fixed deposit is due for renewal, some banks will send you a letter reminding you that the deposit is due for renewal. You have to submit the old certificate to the bank and they will give you a new certificate for renewed period, which will take another 1-2 days. For short duration fixed deposits, the details are included in the same form. Some banks like Abhyudaya Bank, Mumbai will not credit your account with interest after the due date, if you do not give renewal instructions to the bank within 15 days of the due date.
Though interest calculation for fixed deposits in most branches is computerized, there is sometimes a problem with their banking software. Many banks have sweep-in/sweep out option, where you earn fixed deposit interest rates large amounts in savings account . Punjab and Maharashtra Co-op bank is one of the largest urban co-op banks in Mumbai. There was a problem with the software for calculation of interest for their flexi money account, which was discovered after more than a year. They debited all accounts for large amounts without even informing customers and none of their staff could give a proper explanation of the problem
Tax is deducted at source on interest on Fixed deposits by banks at the rate of 10.2% if the interest on fixed deposits at a particular branch is more than Rs 5000. They will then issue TDS certificates at the end of the year, which will have to be submitted to income tax department with the income tax returns. If you submit form 15H, the banks will not deduct the tax. If you are a shareholder of a co-operative bank, there is no tax deducted at source for fixed deposits and you do not have to submit form 15H
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