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Fixed Deposits (FD) is popular among investors in India as a safe investment option. Fixed deposits are the type of investment where investors invest money for a certain period of time. It is called as Fixed because during the period of investment, the interest rates may fluctuate, but your fixed deposit interest rates would remain locked in at the interest rate at which you invested in it.

Fixed deposits are provided by finance institutions such as banks (pubic sector, private banks, foreign banks, cooperative  banks) and companies. The deposit period  may range from 7 days to 10 years. The features of fixed deposits may vary from institution to institution . The finance institution provides interest rates depending on the loan amount and the tenure of deposit.  Our article Overview of fixed deposits explains about fixed deposits in detail.Factors that need to be considered for investing in Fixed Deposit are :

  • Amount that needs to be invested
  • The tenure period

Once you have decided those, you need to compare the rate of interest offered by various institutions on the given deposit amount and period. However the rate of interest is not the only considering factor,  other factors like premature withdrawal, compounding rate, kind of institution also need to be considered. These are discussed later in the article.

Interest Rate on Fixed Deposits

The rates for resident non-senior Indians are given below. Senior citizen usually get higher rate of interest.

Disclaimer: Interest rates change from time to time. Please check the latest interest rates with the bank before investing.

Highest interest rate across different banks, periods, amount
Name of the Bank Period of fixed Deposit Investment Amount Rate of Interest(%) Type
Bharat Co-operative Bank 300 days Rs. 15 lakh and above 10.25% Cooperative Banks
Kapole Co-operative Bank 500 days  Less than Rs. 15 lakh 10.10% Cooperative Banks
Tamilnad Mercantile Bank 400 days Less than 1 crore 10% Indian Private Sector Bank
Punjab & Maharashtra Co-operative Bank 13 months to 24 months Less than Rs. 25 lakh 10% Cooperative Banks
City Union Bank 500 days  Upto 15 lakh 10.00% Indian Private Sector Bank
The Ratnakar Bank 500 days  Rs. 1 cr upto Rs.3 crore 9.9% Indian Private Sector Bank
Highest interest rate of Public Sector Banks for different periods and amount
Name of Bank Interest rate Tenure Amount
UCO Bank 9.55 61 days to 91 days Rs. 5 cr and above
Union Bank of India 9.50 46 days to 60 days Rs. 10 cr above to Rs. 50 cr
Andhra Bank 9.42 1 year to 2 years Rs. 50 cr to less than Rs. 100 cr
Indian Overseas Bank 9.40 1 year to less than 2 years Rs. 10 cr and above
Bank of India 9.25 555 days Rs. 15 lakh to and above than Rs. 1 cr
State Bank of Patiala 9.25 555 days (Vaibhav) Less than Rs. 15 lakh
Punjab and Sind Bank 9.25 500 days Upto Rs. 15 lakh
Vijaya Bank 9.25 1 year (V-Vaibhav) Less than Rs. 5 cr
State Bank of Mysore 9.25 1 year only Rs. 1 cr to Rs. 5 cr
Bank of Baroda 9.20 1 year Above Rs. 100 cr
Highest Interest Rate for period of 2-3 years for investment amount less than 15 lakh
Name Type of Bank Interest Rate(%) Tenure
The Ratnakar Bank Indian Private Sector Banks 9.50 24 month to less than 36 month
Indus Ind Bank Indian Private Sector Banks 9.25 999 days (SPECIAL SCHEMES)
Canara Bank Public Sector  9.05 2 years and above to less than 3 years
Axis Bank Indian Private Sector Banks 9.00 30 months to less than 3 years
Vijaya Bank Public Sector  9.00 2 years to less than 3 years
Allahabad Bank Public Sector 9.00 2 years to less than 3 years
Punjab and Sind Bank Public Sector  9.00 Above 2 years to less than 3 years
Bank of India Public Sector 9.00 2 years to less than 3 years
Rates across selected periods in some banks for less than 15 lakh
Name 1 year 2year 3  years 5year 10 year
Private Banks
Axis Bank 8.50% 9% 9% 9% 8.5%
HDFC Bank 8%  8.75%  8.75% 8.75% 8.25%
ICICI Bank 7.5%  8.75% 8.75%  8.5% 8.5%
 9.00%  8.75%  8.75%  8.5%  8.5%
 Yes Bank 9.00% 9.00%  8.75%  8.75%  8.75%
Public Banks
 State Bank of India 8.50% 8.50% 8.50%  8.50% 8.50%
 Central Bank 9.0%  8.75% 8.50% 8.50% 8.50%
Punjan National Bank 9.0% 8.75%  8.75% 8.75% 8.50%
Union Bank of India 9.0% 9.0% 9.0% 9.0% 8.75%
Indian Overseas Bank 9.0%  9.0% 9.0% 9.0% 9.0%

Factors to be considered for investing in Fixed Deposits

Rate of interest is not the only factor in choosing a Fixed Deposit. Factors like tenure, premature withdrawal, compounding rate, kind of institution also should be considered for investing in Fixed Deposit.

Kind of Institution

Fixed deposits are offered by banks (pubic sector, private banks, foreign banks, cooperative  banks) and companies. Banks can be differentiated based on who owns the bank, Different kinds of banks are explains difference in detail, such as

  • Public sector banks or Nationalized Banks are where majority stake is held by the Government of India for example State Bank of India, Punjab National Bank, Canara Bank
  • Private Sector Banks where majority of share capital of the bank is held by private individuals. These banks are registered as companies with limited liability. For Example ICICI Bank, Axis bank, HDFC Bank, etc
  • Foreign Banks These banks are registered and have their headquarters in a foreign country but operate their branches in our country ex: HSBC, Citibank, Standard Chartered Bank
  • Co-operative Banks  are small-sized units organized in the co-operative sector which operate both in urban and non-urban centers. These banks are traditionally centered around communities, localities and work place groups and they essentially lend to small borrowers and businesses. Rediff’s What you need to know about co-operative banks covers co-operative banks in detail.

Business Today-KPMG Study of India’s Best Banks in 2012 lists best banks of 2012 and Business Today India’s Best Bank covers banks from 2001

Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. To lure investors, such companies offer higher interest rate than banks. Company fixed deposits are not regulated by the Reserve Bank of India.  So, if a company runs into losses or goes bankrupt the money invested into its fixed deposit can be lost.  Before investing in any company fixed deposit it is advised to check the credentials of the company. Onemint’s 6 things you should know about company fixed deposits explains about investing in company fixed deposits.

Co-operative Banks may offer slightly higher interest rate than public/private banks, but safety of your funds should have higher priority than earning 0.5% to 1% more interest  There have been cases when co-operative banks have failed,8 co-operative banks go belly up (2011), though the depositors got paid back upto 1 lakh . Please remember that under the norms of Reserve Bank of India (RBI) ‘s Deposit Insurance and Credit Guarantee Corporation (DICGC),a maximum of Rs 1 lakh is paid to a depositor in case a bank goes insolvent.

Tenure and Amount to Invest

The interest rates offered on fixed deposit vary greatly with banks and within a bank on tenures and amount to invest. Tenure of  FDs vary from a few months to several years. Your decision on the FD tenure should be dictated by your need i.e when you need the money . For instance, if you want to put your surplus funds towards down payment on your home loan, opt for a FD with a tenure that coincides with the timing of the down payment. For example the rates of State Bank of India as on 1-Mar-2013 are as follows:

Tenure Below Rs.15 Lakhs Rs.15 lakhs to less than Rs. 1 Cr
 7 days to 90 days  6.50%  7.50%
 1 year to less than 2 years  9.0%  9.0%
5 year to 10 years  9.0%  9.0%
Changing Interest rate

Fixed deposits are prone to uncertainty because interest rates tend to move in cycles i.e Interest rate on fixed deposit once invested is fixed but interest rates on fixed deposit opened at different times will be different. For example for Central Bank of India the fixed deposit rate for tenure of 1-2 years were revised on 1-Mar-2013.

Period Rate on 09.02.13  Rates on 01.03.13
1 yr  to less than 2 yrs 8.75 9.00
2 yr to less than 3 years 8.75 8.75

The change in rates of term deposit depends on the demand and supply of money. So when the demand for credit is poor, banks reduce rates.On the other hand, when demand for credit is high, banks increase rates on FDs as they need more money to lend. RBI tightened liquidity by raising rates from April 2010 to October 2011. By the end of this period, banks had also raised FD rates. Going forward interest rates are expected to go down. DNAIndia’s It’s time you locked into a long-term fixed deposit explains it. Our article Fixed Deposit and Interest Rates shows interest rates on Fixed Deposits over the years.

To take advantage of changing interest rates(especially in increasing interest rates scenario), it is suggested build a ladder of fixed deposits which have different tenures. If you have Rs 4 lakh to invest, split the amount in four deposits of Rs1 lakh each for one, two, three and four years. When the 1-year deposit matures, reinvest the maturity proceeds in the 4-year FD. By doing so, the highs and lows in interest rates will balance out over a period of time. This will also ensure liquidity because you will have one deposit maturing every year..

 Interest payout frequency

The interest on the Fixed Deposit (FD) account may be given to you on a monthly basis or on a quarterly basis. Or the interest is compounded on a quarterly basis and paid at the end of tenure. Your financial needs dictate which interest payout option you should choose. If you are a retired individual you might prefer regular interest payout and opt for a monthly/quarterly option. Other investors might opt for the cumulative option.Whether the interest rate is compounded quarterly or monthly will determine how much a person earns from his fixed deposit. It is therefore advised to shop around for the right fixed deposit scheme.

Premature ending of fixed deposits

Banks will impose a penalty if you break your fixed deposit before the maturity period. Make sure you get the facts right about this thing. How the bank calculates this penalty and what all charges will it levy when you break a fixed deposit should be noted carefully. Ensure that your FD penalty clause for premature withdrawal is not worse than the industry standard which is: “If the depositor opts for premature closure, 1% penal interest shall be charged on the rate applicable for which the deposit remained with the bank.

Safety

Your Deposits are insured only up to Rs. 1 Lakh per depositor across all branches of a bank by Deposits Insurance and Credit Guarantee Corporation( (DICGC), Government of India undertaking. So, if you have Rs 3 lakh to invest, split it into 3-4 investments across different banks. While this will safeguard your money, an added advantage is that if you need the amount in case of an emergency, you won’t have to break the entire deposit. This means that you will have to pay the premature withdrawal penalty only for the sum that you need, even as the rest of the money keeps growing.

Tax on FD

Interest earned on Fixed Deposit is taxable. 

  • TDS is cut at the rate of 10% if interest earned in an year is more than Rs 10,000 if PAN is submitted. Unless form 15G/15H is submitted at beginning of financial year.
  • Interest (not the principal) is added to your income under Income from sources. It is taxed as per your income slab.
  • If TDS is cut it should be reflected in your Form 26AS.
  • TDS cut needs to be shown in filing your income tax return.

Our article Fixed Deposits and Tax covers taxation aspect of Fixed Deposit in detail.

Finding Rates and Fixed Deposits Links

To compare Fixed Deposits or find the latest interest rates you can use different sites given below. Our article Finding Info on NFOs of FMP,MFs,FD and Saving Interest Rates covers how to find best rates on Fixed Deposits, NFO’s of FMP.

We found that Moneycontrol’s Best Rates by Fixed Income Instruments allows one to search on different parameters (Tenure, Investor Type) and is regularly updated.In any case  you are requested to reconfirm the rates from the respective institutions before making any financial commitments. 

Links to the fixed deposits of some of the banks are given below.

Allahabad Bank Andhra Bank Axis Bank Bank of Baroda
Bank of India Bank of Maharashtra Canara Bank Catholic Syrian Bank
Corporation Bank Central Bank of India City Union Bank City Union Bank
Dena Bank Dhanalakshmi Bank Federal Bank HDFC Bank
ICICI Bank IDBI Bank Indian Bank Indus Ind Bank
Indian Overseas Bank ING Vysya Bank J&K Bank Karnataka Bank
Karur Vysya Bank Lakshmi Vilas Bank Oriental Bank of Commerce
Punjab National Bank Punjab and Sind Bank South Indian Bank State Bank of Bikaner and Jaipur
State Bank of Hyderabad State Bank of India State Bank of Patiala State Bank of Travancore
Syndicate Bank Tamilnad Mercantile Bank Ltd The Ratnakar Bank UCO Bank
Union Bank of India Vijaya Bank
Foreign Banks
Abu Dhabi Commercial Bank  Bank of Ceylon  Citi Bank  China Trust Commercial Bank
 Deutsche Bank  HSBC Bank  Standard Chartered Bank Scotia Bank
 Royal Bank of Scotland

Disclaimer: Interest rates change from time to time. Please check the latest interest rates with the bank before investing.

Related Articles

Do you invest in Fixed Deposit? If yes how much of your money you invest in FDs ? How do you choose your fixed deposits? Do you ladder your Fixed Deposits?

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