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Easy Ways To Understand FDs: Rules, Guidelines And More

Updated on: 28 Nov 2024

While you’ve just started working or are nearing retirement, investing in FDs offers security and allows diversification of risk. Being aware of certain fixed deposit rules and regulations can help you plan your investment better. While FDs are fairly simple, allowing you to invest a fixed amount for a fixed time to get a fixed return, they do follow certain guidelines of the financial company that offers it and the RBI.

To learn more about fixed deposit rules and regulations, read on. Only by understanding these can you learn what options you can avail with FDs and what limitations you will have to strategise for.

Basics of Fixed Deposits

A fixed deposit is a type of investment that requires you to invest a lump sum amount for a certain period. During this time, you ideally do not withdraw your money and get an interest payout.

You can either choose to get this payout when the FD matures at the end of the tenure or at regular intervals. If you choose to get the gains at the end of the maturity period, you stand to earn more due to higher interest rates and the principle of compounding interest. These basic fixed deposit rules and regulations make it easier for you to preserve your capital.

There are various types of fixed deposits which you can choose based on your preference. These are:

Standard FD: Where the investor is below 60 years of age and gets the applicable interest offered by a bank
Senior citizen FD: Where the investor is above 60 years of age and gets an interest rate hike
Flexi FD: Where your FD is linked to a savings/current account and offers more liquidity at slightly lower interest rates
Tax-saving FD: Where your FD is invested for 5 years and offers a tax deduction
Corporate FD: Where the issuer is a corporate and the interest rates may be higher than an FD offered by a bank

You can take into account your investment goals to choose which FD is best for you. FDs are a widely popular investment option, and these features explain some of the reasons why:

You can invest for 7 days and up to 10 years
Your investment may compound periodically
Your returns are not linked to the market which offers greater security
Senior citizens get a higher interest rate
You can invest as low as ₹5,000 or more than ₹3 crore – the choice is yours
On maturity, you can reinvest the same amount or use it for other goals

General Guide to Fixed Deposits

When booking an FD, consider the general fixed deposit rules and regulations to know what you can expect from this investment. The fixed deposit rules related to TDS and taxes will especially come in handy when you plan your portfolio.

Features	Rules
Minimum and Maximum Deposit Amount	The minimum amount needed is ₹5,000 in general and the range can go up to what you prefer and can afford
Tenure and Premature Withdrawal	The minimum investment period is 7 days and the maximum is 10 years
Interest Rates	It may range between 3.5%* to 8.5%*, and it varies across financial companies based on the invested amount and tenure
Tax Implications	You will pay tax on the interest income from an FD
Nomination Facility	RBI mandates that there should be a nominee for your FD
Tax Deducted at Source (TDS) on Interest Income	If your income exceeds ₹40,000, then TDS will be applicable[For senior citizens, TDS applies when interest income crosses ₹50,000]
Auto-renewal	The FD may be auto renewed after maturity
Exemption Under Section 80C	You can avoid the tax on the amount you invest in a tax-saving FD (5 years) up to ₹1.5 lakhs
FD as Collateral	You can get credit against your FD like a credit card, loan, etc.
Early Withdrawal Penalties	While tax-saver FDs do not allow premature withdrawal, you can withdraw other FDs prematurely on paying an interest rate penalty

*Disclaimer: FD interest rates may change across issuers based on their policy. Please check the latest rates before investing.

Read Also: Short Term FD vs Long Term FD

Fixed Deposit Joint Account Rules

You can also open an FD jointly with a member of your family or business. Remember that the joint fixed deposit rules are also the same as a regular FD with some added clauses related to withdrawal:

‘Either or survivor’ clause – Any depositor can operate the FD individually, even if the other is no more
‘Former survivor’ clause – Only primary depositor can operate it until he or she is no more; at this time, the other depositor/s can access it
‘Anyone or survivor’ clause – Any joint account holders can operate it
‘Nominee’ clause – As per this joint fixed deposit rule, the nominee can operate it once the survivor is no more

New RBI Rules on Fixed Deposits

Here are a few fixed deposit rules that will be implemented from January 2025 on FDs offered by NBFCs and HFCs. Most of these new FD rules are related to premature withdrawals, nomination and notification, such as:

For small deposits of under ₹10,000, premature withdrawal will be interest-free when requested before 3 months of the date of acceptance of the FD
To finance clinical illness, you can withdraw the principal amount without any interest when needed
For public deposits, 50% of the principal up to ₹5 lakhs can be withdrawn if requested in less than 3 months of the date of acceptance of the FD, and no interest will be paid on this; the remaining balance will accrue interest at the agreed-upon rate
Non-banking Financial Companies need to inform you of the completion of the nomination form, any changes made or its cancellation, as the case may be
The notification period for informing depositors of their FD maturing NBFCs has been reduced from 2 months to 14 days before maturity

In India, there are various ways in which you can increase wealth, and fixed deposits are the most popular savings scheme as they offer security and growth at the same time. Keep these rules and guidelines in mind when booking your FD to make the most of it.