Bank Deposits

Bank deposits are safe investments as all bank deposits are insured upto a maximum of INR 100,000 under the Deposit Insurance & Credit Guarantee Scheme of India. Banks are subject to control and regulated by the Reserve Bank of India. They offer various types of deposits, depending on the needs of the customer. Bank deposits are preferred more for their liquidity and safety than for the returns thereon. Interest is paid by banks on regular intervals or at maturity of FD as selected by customer.

Generally the Interest rates paid by Private Banks on deposits are higher than Interest rates of Public Sector Banks.  Also banks provide facility of auto renewal of FDs to avoid loss of interest to customers. It is possible to get loans or overdraft facility of up to 75 – 90% of the deposit amount from banks against fixed deposit receipts.

Banks will generally ask for your PAN no. while opening your Bank account and/or accepting deposits. Interest on Saving bank account is exempt from Income tax to an extent of INR 10000 on annual basis u/s 80TTA. If the interest paid by bank on Saving Bank is higher than 15000, Banks will deduct TDS while paying interest. A Customer can submit form 15G/H to avail benefit of TDS exemption.

Banks generally offer higher interest rates of 0.5%-1% p.a. to Senior citizens on the Bank deposits.

Types of Bank Deposits and key features

1. Savings Bank Account

  • It is often the first banking product people use
  • Lower interest rate as compared to other debt products,
  • It is highly liquid
  • It is suitable for inculcating the habit of saving among the customers

Simply click on the SIGN UP, and view Interest on Saving Account offered by different banks

2. Bank Fixed Deposit (Bank FDs)

  • It Involves placing funds with the banks for a fixed term (generally not less than 30 days) for a certain stipulated amount of interest
  • The ideal investment time for bank FDs is 6 to 24 months as normally interest on bank less than 6 months bank FDs is likely to be low
  • The time frame assumes importance as early withdrawal may carry penalty

3. Special Bank Term Deposit Scheme (Tax Saver Fixed Deposits)

  • This is the Tax Saving Scheme available with banks. A Valid PAN is mandatory for opening a Tax Saver Fixed Deposit (Tax Saver FD).
  • Term deposit of five years maturity in a scheduled bank is mandatory. Tax Saver Fixed Deposit cannot be pre-maturely withdrawn.
  • Relief under Section 80C of the Income Tax, Act available
  • Maximum Amount that can be deposited in a Financial Year in Tax Saver FD is INR 1,50,000/
  • No loans, liens and sweep-in are allowed against Tax Saver Fixed Deposit

Simply click on the SIGN UP, and start comparing Interest on FDs offered by different banks

4. Recurring Deposit Account

  • In this product, some fixed amount is deposited at monthly intervals for a pre-fixed term
  • Earns higher interest than Savings Bank Account
  • Helps in the saving of a fixed amount every month and suitable for inculcating habit f saving among the customers

5. Corporate Fixed Deposits

These days a number of Corporates accept Fixed Deposits from Individuals on an ongoing basis as part of their overall Borrowing Program. For investor, Corporate Fixed deposits are one of favourite investment options, as they give investors the assurance of fixed returns with higher interest rates as compared to Bank FDs

Interest on corporate fixed deposits are paid on a monthly / quarterly / half yearly / yearly / maturity basis. It is paid either through cheque, or through the Electronic Clearing System (ECS). Tax Deducted at Source (TDS) is deducted if the interest earned on a corporate fixed deposit exceeds Rs. 5,000 in a financial year. A user can give form 15G/15H as in case of Bank FDs to claim exemption from TDS

Restrictions on acceptance of Fixed Deposits by manufacturing companies:

A Non-Banking Non-Finance Company (Manufacturing Company) can accept fixed deposits subject to the following limits:

  • Up to 10% of the aggregate of paid-up share capital, and free reserves, if the deposits are from shareholders, or are guaranteed by the directors, or
  • Up to 25% of the aggregate of paid-up share capital and free reserves

Manufacturing companies can accept fixed deposits for a duration of 6 months to 3 years.

Restrictions on acceptance of Fixed Deposits by NBFCs:

A NBFC can accept deposits up to the following limits:

  • An equipment leasing company can accept four times of its net owned fund
  • A loan or investment company can accept deposits worth up to one and half times its net owned funds

NBFCs can accept deposits for a duration of 1 year to 5 years. Housing Finance Companies can accept deposits for a period of 1 year to 7 years.

Key Features

  • Fixed deposit scheme offered by a company. Similar to a bank deposit
  • Used by companies to borrow from small investors
  • The investment period must be selected carefully as most FDs are not encashable prior to their maturity
  • Not as safe as a bank deposit. Company deposits are ‘unsecured’
  • Offer higher returns than bank FDs, since they entail higher risks
  • Rating can be guide to their safety. Go in for FDs with a higher and stable Rating.