Fixed Deposit Schemes, Interest Rates Dec 2016 of all Banks in India Explained

What is a fixed deposit (FD)?

  • Fixed deposit is a fixed income instrument whereby the depositor earns interest at a fixed contracted interest rate for a defined period.
  • Interest rates on fixed deposits vary from bank to bank and based upon tenure of the fixed deposit and in some cases even by the amount deposited.
  • While the interest rate payable remains fixed for the period of the deposit, the rates offered for fresh deposits and for renewals may vary from time to time.
  • Interest on a fixed deposit may be paid either periodically (say, quarterly or half yearly or annually) or on maturity.
  • Interest on a FD is usually compounded quarterly in case of fixed deposits issued by banks.

Who can issue a fixed deposit?

    A fixed deposit may be issued by any of the following entities:
  • Scheduled banks operating in India including public sector banks, private banks and foreign bank branches operating in India
  • Deposit taking NBFC’s permitted by the RBI to accept deposits
  • Housing Finance Companies regulated by the National Housing Bank
  • Public Sector Companies and Undertaking
  • Private Sector Companies
  • Cooperative banks

Fixed Deposit Interest Rates and Calculators

Bank Name Get Current Fd Interest Rates Calculate Maturity Amount Last Update

Comparison of FD schemes of banks and institutions?

Bank FD NBFC FD, HFC FD Corporate FD
Safety Highest Typically lower than banks Typically lower than banks
Credit rating Not required Mandatory Mandatory
Interest Rates Market linked, lower than other FD’s Typically higher than banks but linked to credit rating Typically higher than banks but linked to credit rating
FD Tenure Few days to 10 years 1 year to 5 years 1 year to 5 years
Options available Non cumulative and cumulative Non cumulative and cumulative Non cumulative and cumulative
Coverage under DCGCI Yes No No
Security None None None
Loan against FD Available at 0.5 – 1.0% over FD rate May be available Not available
Flexi/ Sweep facility Offered by many banks Not available Not available
Frequency of interest compounding Quarterly May vary May vary
Tax deduction at Source (TDS) On interest income of more than Rs. 10,000/ - for a PAN in one bank across branches On interest income of more than Rs. 5,000/ - for a PAN On interest income of more than Rs. 5,000/ - for a PAN
Tax Benefit Available on principal amount for long term deposits under Section 80-C None None
Availability Always on tap From time to time From time to time
Renewal Always possible at then interest rates From time to time From time to time
Nomination Facility Available Available Available
Employee FD’s Available; slightly higher interest (upto 0.5%) may be offered Available; slightly higher interest (upto 0.5%) may be offered Available; slightly higher interest (upto 0.5%) may be offered
Special schemes for senior citizens 0.25% to 1.0% higher interest rates 0.25% to 1.0% higher interest rates 0.25% to 1.0% higher interest rates
Shareholder FD’s No extra benefit Slightly higher interest may be offered in some cases Slightly higher interest may be offered in some cases

Are fixed deposits secured?

Fixed deposits are not secured. However, deposits (including all types of deposits with a bank) of an individual or entity upto Rs. 100,000 with banks are guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Typical features of fixed deposits

  • FD allows an individual to earn higher interest rate on surplus money as compared to normal saving accounts which earns only 4-6% p.a.
  • Fixed deposit period can range from a few days to 10 years.
  • A separate deposit is issued each time an amount is deposited as FD. However, there is no limitation on how many FD’s one can open.
  • Depositor gets a fixed deposit receipt (FDR), which he/ she has to return to the bank at the time of maturity.
  • Bank FD’s can be renewed if the depositor so desires. The FD interest rates applicable at the time of renewal (and not the FD interest rates at which the earlier FD is placed) will apply. FD’s issued by other entities may o may mot be renewed depending upon their requirements.
  • An individual can avail loans against fixed deposit from the same bank from which the FD has been issued. Loans against a bank’s own FD are exempt from base rate benchmarked pricing and hence can be offered below base rate also. Typically banks offer loans against FD at 0.5 % to 1.0% above FD rate.
  • Part withdrawals are not allowed. However, in case of emergency an individual can close the fixed account prior to maturity date. In such cases, bank may charge a penalty to the investor and the rate of interest will change for the period. Let’s say Anita invested in an FD for, say, 6 years with interest rate of 8% with a bank in India but decided to withdraw the deposit after 2 years. The FD interest payable to Anita will be 1 – 2% less than the interest rate applicable on the date of deposit for 2 year FD tenure (says 7.5%). So, instead of the contracted rate of 8%, Anita will earn interest at 5.5% to 6.5%.

Advantages of Bank Fixed Deposit

  • Fixed return; no risk of lower return irrespective of market movements.
  • Higher interest rate compared to savings bank account.
  • Loan facility against FD from the same bank at low rates.
  • Channelizes surplus capital towards economic development of the country.
  • Safety and security of principal and interest.

Disadvantages of Fixed Deposit Account

  • Potentially lower returns compared to other investment options.
  • Penalty applicable in case of premature withdrawal.
  • No hedge against inflation in the economy.

Six things to check when selecting a Bank Fixed Deposit

  • Compare fixed deposit rates of all banks.
  • Compare FD rates of non banks like NBFC’s, HFC’s and private companies in case you have higher risk appetite and can forego liquidity.
  • Check frequency of compounding when comparing FD rates. Always try and compare effective rates on same basis of compounding.
  • Mode of interest pay out and FD maturity – prefer direct credit to bank account to avoid delays and cheque handling.
  • Understand pre mature withdrawal facility offered on chosen FD and its penalty, if any
  • Find out if the bank offers auto sweep facility

Eligibility to open a fixed deposit account

  • Individual depositors above 18 years of age and having a PAN
  • Hindu Undivided Family (H.U.F) with a separate PAN
  • Minors (those below 18 years of age) under guardianship of a guardian more than 18 years old
All depositors must satisfy RBI mandated KYC guidelines which include identity proof, age proof and address proof, among others.

Renewal of Fixed Deposit

On maturity, the customer may renew the bank deposit by contacting the branch. Customer can also place an auto renewal request with the bank for either the maturity amount or only the principal component (in which case the interest, subject to TDS, will get credited to the depositor’s bank account).
Corporate, NBFC and HFC renewals are dependent upon their then existing policies.

Nomination facility on Fixed Deposits

  • All deposit accepting banks, NBFC’s, HFC’s and corporates offers nomination facility.
  • Nominee is a person who claims the deposit upon depositor’s death.
  • Without a nominee, money in the FD will not be automatically transferred to the account-holder’s next of legal heirs and the claimants will need to establish their bonafide with the bank.
  • Nominations can be changed or cancelled by the FD account holder.

Loan against Fixed Deposit

  • Banks offer facility of loan against FD. This is particularly helpful if the FD is for a long term and the requirement of funds is only for a brief period making it unattractive to break the fixed deposit. Loan against FD can be availed only from the same bank at which the deposit is placed.
  • Most banks allow loans upto 90% of the value of the fixed deposit.
  • Tenure for loan against FD has to be within the balance maturity of the deposit.
  • The interest rate on a loan against Fixed Deposit is usually 0.5% – 2% above the interest rate on the deposit. Loans against bank’s own deposits are exempt from base rate and hence cane b offered below the bank’s base rate also.
  • Loan against FD can typically be availed even if the applicant has a poor credit history or CIBIL record and a low CIBIL score. Regular repayment of loan agsnt FD may also help improve one’s CIBIL score.

Income tax on Fixed Deposit interest

  • Interest on FD’s is taxed at marginal tax rate applicable to the depositor. Hence, for a person in highest tax bracket, the post tax return on a FD that earns 9% interest may work out to just 6%.
  • One point that lot of depositors are unaware of is that interest income on FD’s is taxed on accrual basis. To explain this further, lets take the example of a cumulative fixed deposit of Rs. 100,000/ placed at 10% for 5 years on 1st April 2014. The maturity value of this FD will be Rs. 163,862 taking into account quarterly compounding. The first year interest accrued on this FD comes to Rs. 10,381. However, the depositor will not receive any interest credit on this FD in the year 2014-15 as the interest is payable on maturity. Still, the depositor must pay tax on the accrued interest in the year 2014-15 in the assessment year 2015-16.
  • In case the interest earned by you on fixed deposits with all branches of a bank in a year exceeds Rs. 10,000, your interest income will be subject to tax deduction of source (TDS) at 10.3%. Remember to quote your IT PAN whne opening the fixed deposit, as otherwise the bank will need to deduct twice the tax at 20.6%. Also, you can claim credit for TDS only if your PAN is recorded with the bank.

What is a tax saver Fixed Deposit (80-C deposit)?

This is a special type of fixed deposit where the investor gets tax deduction on principal invested under Section 80-Cwhen they invest a sum of money in the deposit. The maximum benefit is available up to an investment of Rs. 1 Lakh with a lock-in period of 5 years. Different banks offer different schemes under this category FD. Interest rate may vary from bank to bank and the deposit amount. Premature withdrawal is not allowed under this category. However, if the deposit is encashed before maturity, the amounts held under this scheme do not qualify for deductions.

Income tax on Fixed Deposit interest

  • Interest on FD’s is taxed at marginal tax rate applicable to the depositor. Hence, for a person in highest tax bracket, the post tax return on a FD that earns 9% interest may work out to just 6%.
  • One point that lot of depositors are unaware of is that interest income on FD’s is taxed on accrual basis. To explain this further, lets take the example of a cumulative fixed deposit of Rs. 100,000/ placed at 10% for 5 years on 1st April 2014. The maturity value of this FD will be Rs. 163,862 taking into account quarterly compounding. The first year interest accrued on this FD comes to Rs. 10,381. However, the depositor will not receive any interest credit on this FD in the year 2014-15 as the interest is payable on maturity. Still, the depositor must pay tax on the accrued interest in the year 2014-15 in the assessment year 2015-16.
  • In case the interest earned by you on fixed deposits with all branches of a bank in a year exceeds Rs. 10,000, your interest income will be subject to tax deduction of source (TDS) at 10.3%. Remember to quote your IT PAN whne opening the fixed deposit, as otherwise the bank will need to deduct twice the tax at 20.6%. Also, you can claim credit for TDS only if your PAN is recorded with the bank.
News - Dec 2016
09th Dec 16 Kotak Mahindra Bank to launch Kona Kona Cashfree, a nationwide digital banking initiative
Kotak Mahindra Bank has announced the launch of a pan India digital banking initiative with Kona Kona Cashfree. The idea is to promote cash free transactions by giving incentives, educating and making people aware of various digital payment options available. The initiative is taken to complement the vision of Digital India. The bank has already launched a range of digital banking apps such as Kaypay, an UPI based application and Kotak Bharat, first of its kind multi lingual app in India that does not require internet connectivity.
09th Dec 16 PNB organizes financial literacy cum Digital Banking camp
Punjab National Bank organised an awareness camp on Digital Banking. The camp was held at the branch of village Kotli Jabowal, Arnia on Indo-Pak border. The focus of the camp was to spread awareness about the benefits of opening a saving account and using digital banking applications.
09th Dec 16 MSME ministry to consider increasing cash withdrawal limit for micro units
Ministry for Micro, small and Medium Enterprises (MSME) is planning to increase the cash withdrawal limit for MSMEs to Rs. 2 lacs per week. MSMEs in India are significantly dependent on cash transactions and hence any efforts to move them towards digitisation have to be a gradual process. The main objective of government is to boost the growth of MSMEs in digitisation but without any irregularities in cash availability.
08th Dec 16 Canara Bank cuts MCLR by 15 basis points
Canara Bank has reduced its overnight and three months marginal cost of lending rate to 8.90 and 9.05 percent from 9.05 and 9.20 percent earlier. The bank has also reduced its six months and one year lending rates by 15 basis points to 9.10 and 9.15 percent from 9.25 and 9.30 percent respectively. Revised rates are effective from 7th December, 2016.
08th Dec 16 RBI stunned market with unchanged repo rate
Reserve Bank of India announced its fifth biannual monetary policy on 7th December, 2016. In the latest policy, RBI has left the repo rate unchanged that stands at 6.25 per cent. However, banks were given a liquidity boost with RBI withdrawing the 100 percent incremental cash reserve ratio (CRR) requirement which was imposed in late November post demonetisation.
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