Updated on: Sep 15th, 2023 | 8 min read
There are many paths to wealth creation. The simplest of them is to make your money work for you. The magic of compounding works wonders to create more money from your investments. As such, the longer you hold your investment, the better the return and growth.
Bank Fixed Deposits (FDs) are the most trusted financial instruments since the money is safe with banks and they are well regulated by the RBI and the government. But traditional fixed deposits offer a fixed interest rate depending on the tenure you choose. The interest is payable as per your choice, either monthly, quarterly, semiannually, annually or on maturity.
To take the benefits of a traditional FD a notch higher, banks offer an FD double scheme. As the name suggests, the FD double scheme doubles the principal amount. The term of the deposit is fixed, and the money stays invested for the entire period, along with interest. In this article, let us learn more about its features and eligibility.
A fixed deposit double scheme is a type of fixed deposit where the tenure of the deposit and interest rate are fixed. You need to invest the principal for a fixed time. The money earns a specified interest rate and the investment doubles in value at maturity.
It is pertinent to note that, in this scheme, the investor does not have the flexibility to choose the deposit tenure. The bank specifies a fixed term and interest rate for the deposit.
Usually, banks require a minimum deposit amount for the scheme. The interest rate ranges between 4% – 8% and varies as per the term of the scheme. A special feature of these schemes is that interest generally compounds quarterly, thus enhancing the overall yield. There is no separate interest payout; the principal and interest stay locked in till maturity, and finally, you receive double the initial amount (including the interest).
The following are the features of the FD double scheme:
Interest rate: FD double schemes offer attractive interest rates. You receive double the amount you invested on maturity; the rate does not change once a deposit is created. It ensures that any fluctuation in interest rates does not impact your investment.
Safe returns: Since FDs are offered by banks under the RBI’s purview, you have complete safety and peace of mind. There is no market-linked volatility involved in fixed deposit products. The return is assured with no variation, ideal for risk-averse investors. Moreover, to further safeguard the depositor’s money, DICGC (Deposit Insurance and Credit Guarantee Corporation) also provides an insurance cover worth up to Rs. 5 lakhs on the deposited amount.
Hassle-free: FD double schemes offer a readymade investment solution for investors who find it difficult to choose between multitudes of investment options. The process of opening the deposit is simple; you can visit the bank and submit the application form.
If you already have an account with the bank, you can make the deposit online as well with some banks. If you do not have an account with the bank, you can carry your original KYC documents, and the account can be set up easily.
Premature withdrawal: Since FD double schemes are designed specifically for the purpose of doubling your investment, banks usually do not allow early withdrawal. A few banks may allow partial withdrawals, but not without a penalty. You must check the norms with the bank when opening the deposit.
Loan against deposit: Even though premature withdrawal is not allowed, you can take a loan against the FD for any fund requirements under this scheme. This ensures that your investment is not disturbed if you need funds for any emergency.
Deposit amount: You can choose the deposit amount for the FD double scheme. Minimum fund requirement is low which makes investing easy even if you do not have a large upfront amount to deposit.
Multiple deposits: You can create multiple deposits as and when you have funds available. There is no restriction on the number of deposits you can create.
Nomination facility: Banks offer a nomination facility so your family can easily access the money in case of any eventuality.
Taxation: The interest income from the FD double scheme is treated as “income from other sources” for tax purposes. There is no tax benefit on these deposits. Banks deduct a 10% TDS in interest if interest amount exceeds Rs 40,000 in a financial year. For senior citizens, this limit is relaxed to Rs 50,000. The TDS rate is 20% if the PAN card is not furnished to the bank.
The following are the differences between the normal FD and the FD double scheme:
Tenure: When you create a normal FD, you can select the deposit tenure, and the interest rate applied is as per the tenure. When the tenure is shorter, the interest rate is lower, and money earns returns for a shorter period.
In a FD double scheme, the tenure is fixed by the bank for the money to double. The interest rate is also fixed for the tenure. The purpose of the FD double scheme is to allow your money to remain invested for a long time in order to earn higher interest and give you superior returns.
Compounding: You have different interest payout options on regular FDs. For non-cumulative deposits, you can receive the interest payout monthly, quarterly, semi-annually, or annually. You can choose a cumulative deposit where interest is compounded quarterly/half-yearly/annually and paid out along with the principal on maturity.
A FD double scheme is a cumulative interest deposit scheme; it does not have an interest payout option. The interest is generally compounded quarterly and paid as a lump sum along with the principal on maturity.
Premature withdrawal: Normal FDs allow premature withdrawal with penalties. Only a few banks would allow a premature withdrawal of FD double schemes. The money is invested long-term, and interest is reinvested into the deposit to earn better returns.
The following are the eligibility criteria for the scheme:
Fixed deposit double scheme for risk-averse investors; if you have a pool of money that you want to keep aside for a specific goal like education, wedding, etc., you can safely invest in a FD double scheme for safe and assured returns. The invested money is doubled without any volatility. There is no need to worry about money since bank deposits are one of the safest investments.
Is the fixed deposit double scheme a safe investment?
Yes, the fixed deposit double scheme is offered by the banks. The interest rate and tenure are fixed, and you receive double the principal amount on maturity. The return is fixed and assured.
How does money double in a fixed deposit scheme?
The tenure of an FD double scheme is fixed and does not vary. Since the term is fixed, money remains invested for the entire period. The interest is reinvested and compounded quarterly. These factors ensure your money doubles at the end of the term.
Is a loan available against the fixed deposit double scheme?
Yes, you can avail a loan against the FD double scheme.
Will TDS be applicable on the fixed deposit double scheme?
Yes, there is a TDS deduction on interest earned on the FD double scheme. The TDS rate is 10% if the interest amount exceeds Rs 40,000 in a financial year. For senior citizens, this limit is Rs 50,000. The TDS applied is 20% when no PAN card is furnished to the bank.
Can I invest my child’s name in the FD double scheme?
Yes, you can invest in a minor’s name in the FD double scheme.
Will my deposit double in five years?
The time for doubling the principal depends on the scheme’s tenure and the interest rate. Since the rates change from time to time, the banks assign the terms accordingly on FD double products. You can check the current terms for the FD double scheme with the specific bank.