How is Fixed Deposit Interest Calculated by Bank?

Investing is the best way to ensure you have a backup plan in case of financial troubles.

Opening a Fixed Deposit or FD account in the bank is one of the safest investment options allowing customers to see notable interest rates.

There are designated rates of interest for senior citizens. The highest FD rates provide interest over time.

Table of Contents

Why Invest in FDs?

There are several benefits to investing in an FD account. Let’s take a detailed look at the reasons:

Guaranteed Returns– You will receive fixed guaranteed returns despite how the rates of interest move.
FD Maturity- The maturity grants you the sanction to collect your guaranteed interest and the investment when the term expires. In addition, you receive more money on the returns when you invest correctly.
Flexible Payment– Many customers choose a compound interest to ensure faster growth.
Senior Citizens can earn more money from their life savings with the FD account and have a stable, retired life.

Which Banks Should Be on Your Radar?

To avail of the services of using the FD account, one must know the best banks with the highest FD rates. Knowing the rates will allow the person to compare them and decide which ones are the best for their investment plan.

Each bank has a lucrative offer for their FD. Therefore, an individual must research thoroughly before investing.

Here are the banks with the best interest rates in India:

FD Scheme Name	Interest Rates for FD in Indian Banks in 2023
Axis Bank Tax	6.10-6.85 %
IDFC First Bank	6.50%
Tax Saving FD of HDFC Bank	6.10-6.60%
Indus Ink Bank	6.75-7.50%
Tax Saving FD of IDBI	6.10-6.85%
SBI Tax Saving FD	6.10-6.60%
PNB Tax Saving FD	5.80-6.30%
Tax Saving FD of Canara Bank	6.50%
RBL Tax Saving FD	6.55%-7.05%
Tax Saving FD of Bank of Baroda	5.65-6.30%
Union Bank of India	6.70%
Punjab and Sind Bank	6.10-6.60%

How to Open an FD Account?

Now that you have the FD interest rates of each bank, you can select the ones that will work best for you. To open an FD account, one must follow the detailed process and rules. They need to have a few documents to verify that account. Let’s look at the process.

Opening an FD account can be done in two ways – online and offline.

FD Account Opening Online Process

This process is only possible when you currently have an account in the bank.

Go to the bank’s official website and log in with your account credentials.
After doing so, navigate the website to find the application for the FD account.
Fill in the details in the application before submitting it.

Generally, you may not need your KYC details since your bank may have them in the database. You can also transfer any monetary amount from your account using online banking.

Steps to Open FD Account Offline

You can visit the nearest bank branch.
Submit your details to the bank via an application form requesting to open an FD account.
Attest the necessary documents and submit them to the office. You will also receive a receipt against the amount you deposit into the account.

Will the FD Rate of Interest Change?

Regarding the FD account, the interest rate does not remain the same. It changes from time to time. There are a lot of factors that influence this change. It is best to be aware of these factors and pay attention to the trends to invest wisely.

Knowing the trends will allow you to open an FD account when the market is booming and even close the account or transfer the money to a different one when the rates drop. Let’s look at the factors that influence the fate of your FD account.

Which Factors Influence the FD Interest Rate Change?

Look out for these factors as they affect the interest rate of the FD accounts:

Duration of Deposit: Shooter tenure of the FD means a low-interest rate. Open an FD with a long term to gain maximum and high returns on the investment amount.
Amount of the Deposit: depositing in bulk to earn higher interest rates.
Renewals: Investors can receive high-interest rates on their fixed deposit amounts when they choose the auto-renewal facility. It self-updates the renewal process. The customers can calculate the maturity of the invested amount with the FD calculator. Additionally, it also does away with the tracking of the renewal dates. Customers receive renewal benefits from the bank when they renew their FD account.
Age: Apart from interest rates, the individual’s age is another important factor. Age also determines the interest rate one can receive on their fixed deposit account. Senior citizens receive the benefits of a bulky interest. Thoroughly check all the banks and their rate of interest. Apply to the ones that best align with your investment plans.
Financial Stance of the Individual: two other factors determine the interest rates on the FDs. Those are- the country’s current financial condition and the government’s fiscal policy. The FDs are a marvellous opportunity for investors to earn the highest rate of returns. Of all the types of investments, it is a risk-free one. Perhaps the best feature is that it allows one to build retirement savings.

Additional Factor: Since senior citizens receive added interest rates, any change in the main interest rate will also reflect their returns in coalition with their fixed deposits. The added rates range from 2.25% to 0.50%.

Does Tax Apply to The Interest from the FDs?

How will the FDs fare when tax is applied to them? The interest you earn from the FD is labelled “residuary income.”

However, if the interest you earn is within the ballpark of 40,000 INR, the bank will keep the TDS intact and not deduct it. You must file forms at the onset of the fiscal year. The forms that stop the bank from deducting the TDS are Forms 15G and 15H.

Eligibility for FD Investment

Individuals can invest in FDs under the following conditions:

They are resident Indians
Hindu Undivided Family (HUF)
Sole Traders
Group Companies. Limited Companies. Partnership Firms
Associations, Clubs, Societies
Minors (via their parents or guardians)
Family Trusts

Minimum and Maximum Amount to Invest

Before investing, one must know the range they can invest capital across banks and NBFCs. The normal amount is 1000-25,000 INR. There is no upper limit regarding the amount one can put in their fixed deposit account.