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The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed Deposit, therefore, pre plans a length of time for which the depositor decides to keep the money with the Bank and the rate of interest payable to the depositor is decided by this tenure. Rate of interest differs from Bank to Bank. Normally, the rate is highest for deposits for 3-5 years. This, however, does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn before the period is over. However, the amount of interest payable to the depositor, in such cases goes down.
The rate of interest for Fixed Deposits (FD) differs from bank to bank. When the interest rates were regulated by RBI all banks used to have the same interest rate structure. The present trends indicate that private sector and foreign banks offer higher rate of interest.
A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. At the end of maturity period the depositor gets its principal amount plus interest earned over the maturity period. Fixed deposits also give you a higher rate of interest than a savings bank account. It is one of the oldest and most popular forms of investment across India.
Banks should deduct tax at source on interest paid in excess of Rs. 5000 per annum to any depositor. This is not per deposit but per individual. Therefore if an individual has 5 deposits and the aggregate interest earned on these is Rs. 7000 though in each individual deposit, interest should not exceed Rs. 2000, tax must be deducted at source.
While opening a fixed deposit account, the bank must issue a fixed deposit that should state the following things on its face :
Date of issue
Sometimes a customer may want to withdraw his deposit before maturity. In such case, the customer would have to request the bank to do so. Banks are permitted, at their discretion, to allow early withdrawal and they can charge a penal interest for early encashment. The Reserve Bank states that penal interest must not be charged if the deposit is reinvested in a fresh deposit immediately. The rate of interest that will be paid is the rate for the period the deposit has been with the bank. Banks may prohibit premature withdrawal of large deposits held by entities other than individuals and HUFs if such depositors have been so advised at the time the account was opened.
The deposit matures at the end of the period for which it has been placed. On maturity, the depositor can instruct the bank to renew the deposit. The bank cannot do so without the customer’s instruction. If the depositor does not want to renew the deposit, he can ask for it to be paid to him either by a cheque/ draft or credited to an account he has.
Normally this instruction would be in the account opening instructions. If the depositor does not renew or claim the deposit on its maturity, the deposit will be designated as an overdue deposit in the books of the bank. The bank cannot close and repay the deposit if the depositor does not make a demand. If the deposit matures on a Sunday/ holiday/ any nonworking days, the bank should pay interest at the originally contracted rate on the deposit amount for the Sunday/ holiday/ non business day. The deposit would be paid back on the succeeding working day.
|Bank||Interest Rate||Minmum Balance(Rs)|
|Indian Overseas Bank||6.5%||1,000|