If you are looking for a good rate of return on your money and at the same time want complete safety then you can invest in FDs. FDs are fixed interest-bearing debt instruments which can be held for a fixed duration. There are two types of plans available with FDs.

When you invest in FD you have to stay invested for the predetermined duration. You get the flexibility of choosing the duration, availing loans, overdraft facility and more. You can open an FD with the banks, NBFC, post office and corporates.

FDs offer a fixed rate of interest depending on the duration/tenure. The interest rates vary depending on the bank. The Fixed Deposits (FDs) are also called Term Deposits. FDs do not cover inflation and do not offer a positive real rate of return. The real rate of return is obtained by subtracting the inflation rate from the actual returns on your investments.

The minimum amount required to open an FD depends on the bank and it can vary from Rs. 1000 to Rs. 10,000. There is no upper limit to the amount of money in FD. The tenure of the FD ranges between 7 days to 20 years and varies as per bank.

There are two types of plans available with FDs: Traditional/Non-cumulative plans and Reinvestment/Cumulative plans.

Traditional/Non-cumulative

In this, the principal amount gets invested for the tenure chosen by you. The interest is paid out on a monthly, quarterly or yearly basis depending on the option chosen by you.

Reinvestment/Cumulative

In this, the interest is compounded on a quarterly basis and reinvested along with the principal. The total amount is paid out at the time of maturity which is when the tenure ends.

Taxation

You have to pay tax on the interest earned on the FD as per the income tax slab. Additionally, if the yearly interest on an FD exceeds 10,000 then the bank will deduct TDS at the rate of 10% on the interest earned. If the PAN card is not submitted to the bank then the TDS is deducted at the rate of 20%.

Loan

You can get a loan against your FD and this facility is provided till the end of the tenure of the FD on a renewable basis. The minimum loan amount is 25,000 and the maximum loan amount varies from bank to bank. The applicable interest rate will be 1% - 2% higher than the existing rate on your FD.

For example, a bank may offer a loan of up to 85% of the value of the FD. Other banks may offer a loan of up to 90% of the value of the FD.

FDs are not subject to volatility and therefore are a good way to balance market-linked investments. To invest in the stock market online you can consider the Appreciate trading app.

The author is a blogger and likes to blog about the various options available for saving money. Currently, the author has discussed Fixed Deposits (FDs).