Fixed deposits facilities offered by banks are one of the safest investment opportunities for investors looking for ensured returns on the maturity amount.

It is simple to calculate the guaranteed returns, which investors like you may look forward to earning, from their matured fixed deposits. This is because the interest rates on fixed deposits are pre-defined and cannot fluctuate across the maturity period in any way. If you are looking towards smarter ways of maximizing your fixed deposit returns, then, factors such as high rate of inflation, and tax deducted on the earning from FDs through interests, are something that would like to take a look at too. Here, we throw light on the basics of creating fixed deposits and ways of earning from the same.

Find out How!

There is no specific rule to guide how banks can deduct Tax Deducted at Source (TDS) upon the fixed deposits interests earned. Normally, the TDS is deducted quarterly, semi-annually or annually. Say, if the bank chosen by you deducts TDS per quarter or per half year, the interest earned would be lower in comparison to when TDS is deducted per year.

In a FD, the interest is paid on a cumulative basis, and soon after, the interest is added to the principal amount. In the next period, the bank is required to pay interest on the added amount of principal and last period’s interest. If the bank deducts TDS quarterly, then the principal would be reduced by the amount of tax. If the bank deducts TDS on a yearly basis, you will have the opportunity of earning interest on the cumulative balance.

The Circular

The Central Board of Direct Taxes issued a circular in 2010 that stated “Tax will be deducted at source on accrual of interest at the end of financial year or at periodic intervals in line with the practice of the bank, or the depositor/payee’s requirement, or on maturity or encashment of time deposits.” This statement has left options for different interpretations by Indian banks, as a result of which, discrepancies have arisen in the way tax has to be deducted with respect to the returns on fixed deposits. Because of this Circular, banks are now free to follow different rules for deducting TDS on the interest earned. As a result of this effect, the interest earned upon the deposits differs from one bank to the other.

Way Out!

The best possible way available to investors for selecting the right bank for creating fixed deposits is by searching on the basis of uniformity in TDS deduction by banks. If you can measure the level of uniformity in the way banks deduct TDS, then, by comparing the FD interest rates offered, you can select the most feasible bank for your fixed deposit investments. You can make use of the Fixed Deposit interest calculator offered by the banks for calculating the expected interest earning. Once you develop the uniformity feature prevalent in the banks shortlisted by you, you need not worry about the procedural issues that may hamper the returns on FDs.

Find out the Best

For conservative investors who are risk averse in their nature of investments, or for those who want to safeguard their principal amount, an investment in the 5-year Tax FD would serve to be the most suitable choice. This FD comprises of three most essential characteristics that distinguishes it from other regular deposits offered by banks. The primary feature of this kind of FD is that there would not be any facility for premature withdrawals. Secondly, there is no grant for loans from it, and thirdly, the scheme cannot be auto-renewed.

This simple and easy to understand product for investments is available widely for risk-averse investors to get good returns from. Single time payment and certainty of earned interest income make fixed deposits the most desirable product amongst investors looking for 100 percent safety of their principal. Are you one of them?