FDs are one of the most popular investment choices in India. You can deposit a fixed amount in a bank/NBFC account for a fixed period and get interest payments on it. At the end of the maturity period, the initially deposited corpus is paid back to you. All banks and many NBFCs offer this investment choice. You can examine the credit ratings of all and choose the one that optimises the risk and return for you. There is a choice to get paid monthly, quarterly, semi-annually, or annually- at a frequency that suits your needs. There is almost no risk to the invested capital, and interest payment is nearly guaranteed.
Depending on the duration of the deposit, FDs are classified into long-term and short-term FDs. Long-term FDs usually have a maturity period greater than one year. FDs with a tenure of 1 year or less are short-term FDs. In the below article, we will compare 1 year fixed deposit interest rates and the features offered by different banks/NBFCs on these deposits.
Please note that the rate of interest offered on FDs is slightly higher for senior citizens, and hence there is a bifurcation between regular rates and those offered to senior citizens.
FD Interest Rates with a 1-year Tenure
|Financial Institution||General Public||Senior Citizen|
|ESAF Small Finance Bank||5.5%||6.0%|
|Utkarsh Small Finance Bank||6.00%||6.75%|
|Shriram City Union Finance||7.00%||7.50%|
|LIC Housing Finance||6.75%||7.00%|
|Punjab & Sind Bank||5.00%||5.50%|
Top Banks Offering Fixed Deposit for 1 year
ESAF Small Finance Bank
- These interest rates are for deposits less than Rs. 2 crores.
- The bank started its journey as an NGO and transformed into Micro Enterprise. It is a development bank inspired by the success of Grameen Bank in Bangladesh.
Utkarsh Small Finance Bank
- Senior citizens get a 0.75% higher interest rate.
- You can choose to receive interest monthly, quarterly or at maturity.
- You are charged a 1% penalty on premature withdrawal. However, the penalty is not applicable if the FD is closed within 7 days of application
Shriram City Union Finance
- On renewing an investment, you will receive an additional interest rate of 0.25%.
- The interest rate for senior citizens is 0.5% higher.
- You can invest in both cumulative and non-cumulative FDs.
- Additional interest of 0.10% p.a. will be paid to Women Depositors.
- Additional rate of 0.15% p.a. to employees of Shriram Group Companies and their relatives.
LIC Housing Finance
- The above interest rate is applicable on deposits of up to Rs. 20 crores.
- You can choose cumulative or non-cumulative options.
- A penalty of 1% is charged on premature withdrawal,after 6 months of deposit. An interest of 3% is paid in case of withdrawal between 3 to 6 months. No interest is paid if the withdrawal is made before the completion of 3 months of investment.
Some of the highlights of investing in an FD are:
Maturity Period: You can invest in FDs for any tenure starting from 7 days up to 10 years or more, depending on your investment horizon.
Interest payments: The interest rate usually increases with an increase in the tenure of the FD. You can choose the frequency of interest payment between monthly, quarterly, half-yearly, or yearly. You can also choose to invest in a cumulative FD and benefit from its compounding effects.
Loans: FDs are considered secure and can be used as collateral to avail loans against them. You can take a loan of up to 90% of the FD value; however, this may vary from institution to institution
Premature withdrawal: In case of an emergency, an FD acts as an emergency fund from which you can prematurely withdraw. However, you are usually charged a penalty for premature withdrawal from an FD. The penalty amount could vary based on the institution. Some institutions might not charge any penalty for an early withdrawal.
Renewal: At maturity, you can withdraw your capital or renew your deposit. FDs usually come with an option of auto-renewals.
Minimum and Maximum Amount: The minimum amount for opening an FD account can be as low as Rs.1000 in some institutions in India. This is, however, subject to variation from one institution to another; for example, some banks have a different minimum amount for FDs booked electronically. There is no upper limit on the amount of money you can deposit in an FD.
Tax Benefits: An interest income above Rs. 40,000/- is taxable as per your highest tax bracket. However, an income of up to Rs. 1.5 lakhs invested in tax-saver fixed deposits with a tenure of 5 years is exempt from income tax under section 80-C of the Income Tax Act, 1961. There are no tax benefits for investing in FDs for a tenure of 1 year.
Low Risk: Fixed deposits are very low-risk investment instruments. You should only invest in fixed deposits from financial institutions with credible ratings by ICRA, CRISIL or CARE.
Regular Income Stream: In case your income stream is not consistent or you need to supplement your income, non-cumulative fixed deposits ensure that you receive a consistent stream of income.
Fixed deposits are a safe means to park your funds for the desired term and earn guaranteed interest. FD interest rates for 1 year, though lower than most market-linked instruments, offer a fair rate of return. You should analyze the key features of the FDs offered by different institutions and choose the one that best suits your risk appetite, premature withdrawal requirements, and required returns.
Is FD in housing finance companies safe?
Fixed deposits with housing finance companies that are rated ‘Safe’ by credit rating agencies are safe and come with minimal risks.
What are the disadvantages of a fixed deposit account?
The disadvantages of investing in FDs are
a) Low-Interest rate: The interest rate on FDs is usually lower than returns on other market-linked instruments.
b) Interest Rate doesn’t change: The interest rate on FD does not change during the tenure. Let’s say you invest in a 2-year FD at a 6% interest rate, the inflation might change after 6 months, but you will continue to receive the interest at 6% throughout the tenure. As a result, inflation or other factors might make the effective interest rate too little comparatively.
c) Taxation: Interest income from FDs is taxable, with tax deducted at source.
How should I choose between a short-term FD and a long-term FD?
Longer-term FDs come with higher interest rates. Therefore, if you can manage by locking in your amount for more than 1 year, you should go for a Long term FD. Else, you have to opt for a short-term FD.
What is a recurring deposit?
A recurring deposit consists of a bank/post office deposit account in which you make monthly contributions. You will earn a fixed rate of interest on the accumulating deposit. This interest rate depends on the tenure of the RD you select and the deposit amount.
What is a sweep-in FD?
In a sweep-in fixed deposit, your savings or a current account is linked to your FD. You have to specify the minimum balance in the savings account, beyond which any amount is to be swept into the FD. This allows you to earn higher interest rates on your surplus money while maintaining minimum liquidity. In case the balance in your savings account falls short, you can withdraw the same from the linked FD without any penalties.
Can I link multiple FDs to one savings account?
Yes. You can link multiple fixed deposits to a single savings account.
Can I link multiple savings accounts to one FD?
No. You can link only one account to one FD.
Chandhana is a budding investment professional with growing expertise in the capital markets. She has completed her Bachelors in Business Administration with a specialisation in Finance from Christ (deemed to be) University,Bangalore. She is also a CFA L2 candidate. She is currently working as an Investment Associate at Wint Wealth.