A Fixed Deposit (FD) is a financial instrument provided by banks and NBFCs that offers a higher rate of interest than regular savings accounts. It's a safe investment option with guaranteed returns.
Key Features of FD:
- Guaranteed Returns: Fixed interest rate for the entire tenure
- Safety: Principal amount is protected (up to ₹5 lakhs by DICGC)
- Flexibility: Choose tenure from 7 days to 10 years
- Compounding: Interest can be compounded at different frequencies
FD Formula:
The maturity amount is calculated using: A = P × (1 + r/n)^(n×t)
- P = Principal amount
- r = Annual interest rate (in decimal)
- n = Compounding frequency per year
- t = Time period in years
Compounding Frequencies:
- Annually: Interest compounded once per year
- Semi-Annually: Interest compounded twice per year
- Quarterly: Interest compounded four times per year
- Monthly: Interest compounded twelve times per year
- Daily: Interest compounded 365 times per year
Tax Implications:
- Interest earned on FD is taxable as per your income tax slab
- TDS is deducted if interest exceeds ₹40,000 (₹50,000 for senior citizens)
- Consider tax-saving FDs for additional benefits under Section 80C
