Are you someone who sees fixed deposits as the safest and most guaranteed way to generate income? If so, you might be onto something! Fixed deposits offer steady returns, making them ideal for risk-averse individuals planning for emergencies or retirement.
In today’s digital age, saving and investing have become easier with the banking industry’s shift towards digital solutions. Despite these advancements, fixed deposits remain a timeless investment choice due to their reliability and security. Digital fixed deposits now allow you to complete the entire process online, including KYC verification, saving time and effort.
In this article, we’ll explore the advantages of fixed deposits, the steps to invest in FDs online, and strategies for maximising your investment.
Top 5 Reasons to Open a Digital FD
1. Quick and Easy Setup
Opening a digital fixed deposit is a breeze and can be done in minutes. You can set it up through online or mobile banking platforms offered by various banks. The process is streamlined thanks to the video KYC feature, which verifies your identity digitally. This means no more waiting in lines or filling out extensive paperwork. You’ll receive real-time notifications, making the whole experience smooth and efficient.
2. No Savings Account Required
Traditionally, banks required you to have a savings account before you could open a fixed deposit. However, with the advent of digital fixed deposits, several banks now allow you to open one without a savings account. This innovation simplifies the process, making it accessible to more people. If you already have a savings account, you can still open a digital fixed deposit account in minutes. Still, it’s no longer a prerequisite for everyone.
3. Competitive Interest Rates
Digital fixed deposits offer attractive and highly competitive interest rates. These rates are often as good as, if not better than, those offered for traditional fixed deposits. Senior citizens can enjoy even higher interest rates, providing them with additional benefits. You have the flexibility to choose a tenure ranging from seven days to ten years, enabling you to adjust your investment in accordance with your requirements and financial objectives.
4. Start Investing with Just ₹1,000
One of the biggest advantages of digital fixed deposits is the low entry point. You can start investing with as little as ₹1,000, making it accessible to a wider audience. This is particularly beneficial for individuals who are early in their careers or those who may not have large amounts of disposable income. Traditional fixed deposits often require a higher principal amount, but with digital fixed deposits, you can start small and grow your investment over time.
5. Every Advantage of a Regular Fixed Deposit
A digital fixed deposit provides all the perks of a traditional fixed deposit. You have the option for premature withdrawals in case of emergencies, allowing you to access your funds when needed. You can also renew your deposit upon maturity to continue earning returns. Additionally, you can choose between cumulative and non-cumulative schemes. A cumulative scheme reinvests the interest, leading to compound growth, while a non-cumulative scheme provides regular income, which can be monthly or quarterly.
Steps to Invest in a Fixed Deposit Online
Investing in a Fixed Deposit (FD) is a smart way to preserve your capital and earn steady returns. Here’s a detailed guide on how to invest in FDs Online.
Step 1: Check and Compare FD Rates
Interest rates on FDs vary across different financial institutions. NBFCs and small finance banks often offer higher interest rates compared to commercial banks. Additionally, senior citizens usually receive a higher interest rate on their FDs. To maximise your earnings, compare the interest rates offered by various institutions. However, it’s also crucial to consider other factors, such as the bank’s credibility, terms of service, and any associated fees, before making a decision.
Step 2: Pick a Suitable Deposit Tenure
FDs come with tenures ranging from 7 days to 10 years. The tenure you choose should align with your financial goals and liquidity needs. For short-term needs, you might opt for a tenure of a few months to a year. For long-term goals, a tenure of several years might be more suitable. Financial experts often recommend laddering your FDs across different tenures. This strategy involves splitting your investment into multiple FDs with varying maturities. It helps manage interest rate risks and ensures liquidity at different intervals. If you are looking for tax benefits, consider investing in a 5-year tax-saving FD, which provides deductions under Section 80C of the Income Tax Act.
Step 3: Choose a Frequency of Interest Payouts
Once you’ve decided on the FD tenure, select how often you want to receive interest payouts. Options typically include monthly, quarterly, half-yearly, or annually. If you don’t need regular income from your FD, you can opt for the reinvestment mode. In this mode, the interest earned is compounded quarterly and paid out along with the principal at maturity. This option can significantly boost your overall returns through the power of compounding. Choose the payout frequency based on your financial goals and whether you need regular income or prefer reinvestment.
To help plan your investment, you can use the Angel One FD Calculator. This tool is easy to use and helps estimate your returns by entering the investment amount, interest rate, and tenure.
Step 4: Select a Mode of Deposit
Decide how you want to make your deposit. Most banks and financial institutions offer the convenience of internet banking for opening an FD online. You can complete the process from the comfort of your home. Once you’ve chosen your preferred method, fill out the FD application form and provide the necessary soft copies of the documents. This step finalises your investment, and you will receive an acknowledgment from the bank confirming the details of your FD.
Things to Consider Before Investing in a Fixed Deposit
To ensure a smooth investment experience, consider the following factors before investing in an FD:
1. Availability of Premature Withdrawal Facility
Before committing to an FD, check if the financial institution allows premature withdrawal. Sometimes, you might need to access your funds before the FD matures. While premature withdrawal is usually possible, it often comes with a penalty. This penalty can be a percentage of the interest rate, such as 1%, and it reduces your overall returns.
2. Safety Aspect
The safety of your investment is paramount. Online FDs offered by commercial banks are typically insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). This insurance covers both the principal and interest amount up to ₹1 lakh per depositor per bank. Although cooperative banks might offer higher interest rates, commercial banks are generally considered safer due to this insurance coverage.
3. Taxability
The interest earned on FDs is fully taxable. The tax is calculated based on your applicable tax slab. Suppose the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). The bank will deduct 10% TDS (Tax Deducted at Source) in that case. Suppose your total income is below the taxable limit. In that case, you can avoid TDS by submitting Form 15G (or Form 15H for senior citizens) to the bank. Tax-saving FDs with a 5-year lock-in period allow you to claim deductions up to ₹1.5 lakh under Section 80C, but they do not permit premature withdrawal.
Conclusion
If you have surplus cash that you don’t need immediately, consider investing it in an FD. An online FD offers convenience and flexibility, allowing you to manage your investments efficiently through digital platforms. It’s a secure way to earn steady returns while avoiding the hassle of traditional banking processes. To make the most of your digital fixed deposit, use an FD calculator available on Angel One. This free tool helps you determine the best terms and conditions for your deposit.
FAQs
How do I open a digital fixed deposit account?
Opening a digital fixed deposit account is simple and quick. You can set it up through online or mobile banking platforms offered by various banks. The process typically takes a few minutes and includes video KYC for identity verification.
Do I need a savings account to open a digital FD?
No, many banks now allow you to open a digital FD without a savings account, making it more accessible to more people. However, if you already have a savings account, you can still open a digital FD quickly.
What is the minimum investment required for a digital FD?
You can start investing in a Digital Fixed Deposit with as little as ₹1,000. This low entry point makes it accessible to individuals with limited disposable income or those early in their careers.
Can I choose how often I receive interest payouts from my digital FD?
Yes, you can select the frequency of interest payouts. Options typically include monthly, quarterly, half-yearly, or annually. Alternatively, you can opt for the reinvestment mode, where interest is compounded quarterly and paid out at maturity.
Are digital fixed deposits safe?
Yes, FDs offered by commercial banks are typically insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), covering both principal and interest up to ₹1 lakh per depositor per bank. Ensure the bank you choose offers adequate insurance.
Can I withdraw my Fixed Deposit prematurely?
Most banks allow premature withdrawal of FDs, but it usually comes with a penalty, which can be a percentage of the interest rate. Check the penalty structure before investing to understand the implications of early withdrawal.