When we have a sum of money and we want to invest it, Fixed Deposit is one of the best options to get return benefits.
Looking for an FD with no taxation? Then tax Saving Bank Fixed Deposits are fixed deposit schemes with good returns that are not taxed. To avail this scheme we need to invest the specific amount where you can enjoy tax benefit for investments of up to only INR 1, 00,000. But to benefit from this kind of savings one needs to save for a minimum of five years.
If you have tax saving fixed deposit under the Deposit Insurance and Credit Guarantee Scheme of India then you have an insurance coverage of up to INR 1 lakh.
Besides banks, one can also apply for fixed deposits from co-operative banks and non-banking financial institutions (NBDC) like LIC/Shriram Transport Finance Company Ltd which offers FDs and sometimes they offer better interest rates on FD than the banks. Though one need to make sure that the investment needs to be made in reputed NBFC as some of them are susceptible as well.
After the maturity of your fixed deposit, you will get the return that was deposited to your savings account, which you have chosen for the period structure of monthly or quarterly basis. Again if you desire to re-invest the same amount which will be additionally invested and the returns will get the gain in term of compound interest.
Nevertheless one must know that apart from investing in long tenure you cannot apply for a loan with the tax saving FD. Then in terms of the medium to long term prospect like five years, and also if you are looking for a secure and tax-free return and getting good returns on your money, then the tax savings fixed deposit becomes more than useful.
The Fixed deposits might not give you a good return like that you used to get earlier like 14% but if you look and take into consideration of the income tax-free returns, the tax saving Fixed Deposits have surely developed some lost reputation that the FDs once was.
No need to worry about a huge sum of money as you can start with as little as INR 100 and for older citizens, the returns are slightly higher based on the bank/ NBFC that you are investing the fixed deposit. Recently, they have added a sweep-in facility which again is not relevant for the tax saving fixed deposit and also you cannot even link that to your savings account. Not only that the extra amount that in your savings account cannot be moved to the tax savings FD and there is no overdraft advantage too.
If we take into consideration of a joint tax saving fixed deposit, the income tax discount is valid merely to the primary owner and not to both the owners when we compare that with normal fixed deposits.
Generally, the interest is calculated on a quarterly base and returns are added back to the fixed deposit (FD). Thereby if you increase the principal amount every quarter you will have tax savings FD which gives you monthly return but if you compare the same with the former, the monthly returns FD will not give you higher returns.
So if you are looking for higher returns more than savings or PF account returns but wants to avoid taking the jeopardy of investing in equities and also want to save tax, then saving FD is the right choice for you.