04 | April | 2011 | wealthymatters

Tax – Saving Fixed Deposits

April 4, 2011 4 Comments

In Budget 2006, the government extended tax benefits under section 80C of Income Tax Act, 1961 to five-year tax-saver deposits. As per this provision, a tax-payer is eligible for exemption on five-year deposits on investments up to Rs 1 lakh. These fixed deposits are locked in for a five-year period . There is no option of premature withdrawal. Also, you cannot pledge this type of term deposit as collateral to secure a loan to meet liquidity needs. Similarly, banks do not offer overdraft facility on tax-saver deposits.Unlike the plain vanilla fixed-deposit products, these tax-saver FDs do not have the sweep-in facility. This means a person cannot link fixed deposit to their savings account so that the surplus funds in the savings account can be automatically invested in this fixed deposit.In addition, there is no overdraft facility available on the tax-saver FD. As this instrument of saving money is special due to its tax-saving status, banks do not extend relationship benefits on the tax-saver FD. Read more of this post

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Bank Fixed Deposits

April 4, 2011 4 Comments

A bank FD is a savings instrument where you deposit an amount with the bank for a fixed duration.You earn a fixed rate of interest on this investment. The interest rate is fixed at the time of the investment – even if interest rates change during the tenure of the FD, the interest that you earn on your FD remains fixed. A FD is also called a Term Deposit at times, as it is an investment for a pre-defined term.

All banks have their own rules on minimum deposits.Most nationalized banks will start a FD with just Rs.1000.

The tenure of a FD can be anywhere from 15 days to 10 years.The rate of interest offered on a FD depends on various parameters: the prevailing interest rates, the duration of the FD, the amount of the FD, your age, etc.Usually, the longer the tenure of the FD, the higher is the interest rate.However,when the economy has a liquidity crunch,banks do offer higher rates on short-term deposits too.They also come out with Special Term Deposits of more unusual tenures such as 555 days, 1001 days etc.Most banks offer a different rate of interest on FDs of more than a certain amount, usually Rs. 15 Lakhs.Also, most banks offer an extra 0.5% per annum to Senior Citizens.Some banks also offer different rates for Trusts and Societies. Read more of this post