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Invest in a Bank FD to earn a regular income in volatile times

4 MinsSeptember 9, 2019

Those seeking secure returns from their investments can look at bank Fixed Deposit (FD) ---also known as term deposit. Especially, if you are wary of the volatile returns from equity investments.

invest in a bank fd

FDs can help ensure your financial well-being and financial security and hence are popular with investors. Some reasons bank FDs clearly are a preferred choice, particularly if you are a conservative or risk-averse investor, are:

  • Your investment is safe and secured – earns a fixed rate of interest
  • Effectively, the returns earned on bank FD can counter inflation with the power of compounding working in your favour (as interest is calculated on a quarterly basis)
  • Can address short-term and long-term financial goals
  • Can take care of your liquidity needs
  • Even tax planning is possible with a tax saver fixed deposit. You can avail of a tax benefit of up to Rs 1.50 lakh under Section 80C of the Income-tax Act, 1961.

[Read: Don’t Keep Tax Planning For the Last Minute. Invest in a Tax-Saver FD Today!]

However, when you invest in a bank FD select the term, that is, the tenure, thoughtfully. Ideally, consider your liquidity needs and financial goals when you select the tenure of your bank FDs.

Similarly, choose your investment plan carefully. For a regular source of income, or say you are a senior citizen (60 years and above), a monthly interest pay-out or a quarterly interest pay-out plan is better vis-à-vis the cumulative plan (also known as reinvestment plan) to manage your cash-flow needs.

Note that for monthly interest payout option, the interest paid will be calculated at a discounted rate over the standard rate. And in case you chose a quarterly payout option, then interest is calculated and paid quarterly.

To maximize the returns on a bank FD, always make it a point to book your FD when interest rates are high. Axis Bank offers best in the class interest rates on bank FDs for both, long and short term investments.

To know how much you will receive as returns, use Axis Bank’s FD calculator.

If the interest income earned on all your bank FDs is less than Rs. 40,000 in a year, as per the current tax laws, the bank will not deduct tax at source – this is particularly beneficial for small savers. For senior citizens, the threshold limit to apply TDS on interest income on deposits with banks (includes fixed deposits) and post offices is Rs. 50,000.

In case the interest income you have earned is more than Rs. 40,000 (in case of non-senior citizens) and Rs. 50,000 (in case of senior citizens), then in order to avoid Tax Deduction at Source (TDS), you may submit a declaration under Section 197A of the Income Tax Act in Form 15-G (for general or non-senior citizens) or Form 15-H (for senior citizens), as applicable, provided you have no other income apart from interest income.

Also, as far as possible, avoid prematurely encashing your bank FD because that could put brakes on the power of compounding. Instead, in case, if you need the money (for whatever reason) avail a loan against your bank fixed deposit; it will be far more sensible than withdrawing from your FDs.

If you thoughtfully invest while you endeavour to create wealth, it will serve to be in the interest of your financial wellbeing. A bank FD is suitable to grow wealth safely and steadily over a period of time ––perfect for risk-averse individuals and retirees.

Investing in a bank FD is convenient and hassle-free. You can choose to do it online (via internet banking or mobile banking) or offline, depending on what is comfortable for you.

Check Out How To Apply For FD!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.