Salient features of FD and RD explained!

Money is essential to meet your daily requirements. You should start saving from a young age, whether employed or not. It helps in emergencies and pays for urgent needs. You have the option of opening Deposit Accounts in India to earn additional interest income.

The main advantage of investing in a Fixed Deposit or Recurring Account is that they are risk-free. You receive the original principal with interest. The secured nature is available at flexible tenures and competitive interest rates. People of any age, gender, and occupation can open them at banks since they are a preferred investment.

Features

Though these deposits are famous in India, few people know their features and how they work. The frequency of interest payments varies monthly to quarterly, adds to the principal amount, and is available for withdrawal after maturity. The Fixed and Recurring Deposit Account offer fixed income where banks pay investors a fixed interest on the invested funds. The interest rate is constant throughout the tenure. Other features include:

Collateral

Banks provide up to 90% of the amount as Loans on both accounts if you require funds without breaking the scheme or withdrawing money. It makes the investment journey easier without straining finances.

Interest withdrawal

When it concerns FD, you can withdraw the interest income accrued monthly, quarterly, or half-yearly. If you invest a lump sum, you remove the interest generated and use it as financial income. At the end of the tenure, you get the invested principal. On the other hand, the Recurring Account does not allow you to withdraw the interest amount as the deposits happen every month. The calculation involves compounding or simple interest methods.

Premature withdrawal

Ideally, avoid premature withdrawal unless you require the money urgently. You pay the penalty and reduce your interest income. For example, if you invest Rs. 4 lakh for five years at FD interest rates of 7.5% and withdraw it within two years due to an emergency, the bank gives you only 6% of the interest earned. A per cent of the interest you lose towards penalty charges.

Tools

Several tools on the Banking app are available to manage your investments wisely and calculate the estimated returns. The banks calculate TDS when the interest is due for the deposit and not when they pay it. Thus, the tax on the interest income should be paid annually and not during maturity.

The FD Account is a traditional investment instrument that has won the hearts of many Indians. It guarantees returns without market fluctuations and ensures you fulfil your desires even in emergencies. 

Taxation

The interest income on both accounts is subject to tax as per your slab. Thus, if you fall in the 30% tax slab, the proportionate tax levies on the interest income. The Term Deposit Account levies a tax deduction at the source if your annual aggregate interest income exceeds Rs. 40,000 in a financial year.

Keywords: Fixed Deposit, FD, FD Account