A Complete Guide on How Much to Start with in a Fixed Deposit



Apr 30, 2022

Investing in a fixed deposit, or FD, is usually the most widely given financial advice in our country. While even influencers refrain from sharing stock buying and selling recommendations, most people will confidently ask people they care about to invest in an FD. Despite the availability of attractive, new investment options, like P2P investments from LenDenClub, FDs are still being favoured by risk-averse investors.


This is because FD has been regarded as a safe and attractive investment instrument for a long time. 

Having said that, before investing your hard-earned money anywhere, due diligence is incredibly important. No matter how attractive and assured the returns are, you must do your research and ensure you are indeed making the right financial decision.

In the spirit of the same, we at LenDenClub have taken it upon ourselves to answer all of your questions related to FDs to help you make an informed investment decision. 

Let’s dive right in:


Planning to Open a Fixed Deposit? – Ensure You Know These Facts Thoroughly

While the concept of an FD is fairly easy to grasp, there are some underlying truths that many investors are unaware of. To help you avoid unpleasant surprises, the experts at LenDenClub have curated some little-known, hard facts about fixed deposits:


Minimum And Maximum Deposit Limits

Most banks have a minimum investment amount for FDs. However, lately, this limit has been brought down to reasonable levels. These days, many top banks in the country allow investors to invest in FDs with as little as ₹1,000. 

While most banks don’t have a maximum limit for FDs, there are special requirements for foreign currency non-resident investors, especially if you are making a big transaction. 


How Safe Is Your Money?

As mentioned earlier, FDs are widely considered as a safe investment instrument that is ideal for risk-averse investors. However, with the FD, there is a slim risk of the bank not being able to hold up its end of the bargain. Your money sitting in your savings is under the same risk. While this risk is minute, do you know what happens in the worst-case scenario?

The Government ensures your assets in the bank. However, the insurance is good only for ₹5,00,000. In the case of FD, this includes both the interest and the principal amount.


How Is Income From FDs taxed?


The interest paid on a fixed deposit is subject to TDS (except in the case of post office FD) if the amount exceeds ₹40,000. If your total yearly income is within the exemption limit, you submit Form 15G (or 15H, in the case of senior citizens) in April every year.

It is also a good idea to invest in tax-saving FDs. The interest rates are similar to regular FDs. Investors can save up to ₹1.5 lakh in taxes annually under section 80 C.


Mode Of Deposit

Most banks discourage cash deposits for FDs and prefer cheques or bank transfers. If you are making a transfer from your savings account, your returns will be credited to the same account upon maturity.


Cumulative Vs Non-Cumulative Fixed Deposit: How Are They Two Different?

Fixed deposits can be broadly classified into two distinct categories- cumulative and non-cumulative fixed deposits. Let’s understand the differences between the two:


  • The frequency of payment of interest amount is the main difference between cumulative and non-cumulative fixed deposits. You get your interest at maturity and your principal amount with cumulative FDs. On the other hand, with non-cumulative FDs, you are paid the interest for your FD every month. 
  • In the case of cumulative FDs, the interest accrued every month is invested back into the FD, enabling investors to earn interest on interest. Due to this, the total interest paid is usually higher in the case of cumulative FDs.
  • In contrast, with a big enough principal amount, a non-cumulative FD can be a source of regular income. 


As you can see, both types of FDs have their own pros and cons. In most cases, individuals with a consistent and dependable source of income choose cumulative FDs, and those who don’t have a consistent source of income go for non-cumulative FDs.


Short Term Fixed Deposit: Features, Advantages, & Identifying Your Best Option

The tenure for most regular FDs starts at 1 year and may go up to a decade. However, not all investors have this kind of holding power. In some cases, investors may only want to safely ‘park’ their money while waiting for a desirable investment opportunity. For such investors, a short-term fixed deposit is a great option.

Short-term fixed deposits work exactly like regular FDs, except for tenure. Since these are short-term, their tenure usually ranges between 7 days and 12 months. Since the interest earned on a short-term fixed deposit is close to a regular fixed deposit, they are a great option for transitory savings or an investment option with high liquidity and low risk. 

Here’s how much interest you can earn on short term FDs with top banks:


Bank Name Interest Interest For Senior Citizens
Axis Bank 3.50%-6.50% 5.50%-6.90%
Kotak Mahindra Bank 2.50%-4.25% 3.00%-4.75%
State Bank Of India 5.75%-6.40% 6.25%-6.90%
HDFC Bank 2.50%-5.50% 3.00%-6.25%


Top 10 Fixed Deposit Schemes in India – Make An Informed Decision Before You Invest in an FD

Let’s look at the top fixed deposit schemes in India:


Bank Name Interest  Interest For Senior Citizens 
State Bank Of India 2.90%-5.40% 3.40%-6.20%
HDFC Bank 2.50%-5.50% 3.00%-6.25%
Axis Bank 2.50%-5.75% 2.50%-6.50%
ICICI Bank 2.50%-5.50% 3.00%-6.00%
Kotak Mahindra Bank 2.50%-5.50% 3.00%-6.00%
HSBC Bank  2.25%-4.00% 2.75%-4.50%
Yes Bank 3.25%-6.50% 3.75%-7.25%
Deutsche Bank  1.80%-6.25% 1.80%-6.25%
IDFC Bank 2.75%-5.75% 3.25%-6.25%
IndusInd Bank 2.50%-5.50% 3.00%-6.00%


How To Close/Withdraw Your FD Account? – Step-by-Step Process

Once your FD matures, you will automatically receive the principal and interest amount to your bank account. Alternatively, your FD will be automatically renewed if you have opted for the auto-renewal facility.

If however, you run into an emergency and need funds urgently and want to withdraw your FD prematurely, you will have to follow these steps:


Closing An FD Offline:

Many banks may not offer the option for closing FD offline. However, some banks like the State Bank Of India do still offer this service. To avail of this option, you will need to visit the bank branch and ask for the form for premature withdrawal of FD. Then, you just need to furnish the form with the necessary details and submit the form.

Once the form has been processed, your principal amount will reflect in your account. Please note that there may be a penalty involved in such withdrawals.


Closing An FD Online:

In most cases, closing an FD online is quite simple. Different banks follow slightly different processes but all of them have an option to do this on their web portals.


So, Which FD Should You Choose?

As it may have become apparent, most banks offer nearly identical interest rates on fixed deposits. Considering the returns on FDs are taxed and that the inflation rate of our country has already jumped the 6.5% mark, investing in FD may result in a net loss for most investors.

Having said that, investors should consider their risk appetite while making investment decisions. Your aim should be to create a balanced portfolio of fixed return investments like FDs and alternative investments that yield a higher rate of return.

This is where P2P investments become relevant. P2P investments offer returns that are substantially higher than FD rates. In fact, in some cases, investors have made more than twice the returns as compared to FD interest rates on LenDenClub.