Tax-saver Fixed Deposits (FDs) are an excellent option for anyone looking to invest money in safe and secure investments. This option allows you to save money, earn interest and save on taxes.
The money invested in tax saving fd is locked in for five years, and breaking an FD, Full form ‘Fixed Deposit’ after a month or any time before maturity is not an option.
However, if your financial condition allows you to do so, you can invest money in this instrument, earn tax benefits of up to Rs 1.5 lakh, and earn attractive interest rates on your FD investments under section 80C of the Income Tax Act of 1961.
How to invest in tax-saver Fixed Deposits
So, if you want to invest in tax-saving FDs, here is the process for doing the same:
Here's how to get started:
Choose a Bank: Select a bank or financial institution that offers tax-saving FD schemes. Make sure to compare interest rates and terms offered by different banks to find the best option for your needs.
Eligibility: Ensure that you meet the eligibility criteria set by the bank for opening a tax-saving fixed deposit account.
Deposit Amount: Decide on the amount you want to invest in the tax-saving fixed deposit. Remember that the bank usually sets minimum and maximum investment limits.
Lock-in Period: Tax-saving fixed deposits come with a lock-in period, usually of five years. Make sure you are comfortable with this duration, as you won't be able to withdraw your funds before the maturity date.
Documentation: Complete the necessary documentation required by the bank to open the tax-saving fixed deposit account. This may include filling out an application form and providing Know Your Customer (KYC) documents.
Enjoy Tax Benefits: Once your deposit is made, you can claim tax deductions under Section 80C of the Income Tax Act, up to a specified limit.
Benefits of investing in tax-saving Fixed Deposits
Investing in tax-saving FDs offers several benefits, making it an attractive option for individuals looking to save on taxes while earning a fixed return on their investment:
Tax Deductions: One of the primary benefits of tax-saving fixed deposits is that they allow investors to claim deductions under Section 80C of the Income Tax Act. The amount invested in these deposits, up to a specified limit, is eligible for tax deductions, reducing the investor's taxable income.
Capital Protection: Unlike other investment avenues such as stocks or mutual funds, tax-saving fixed deposits offer capital protection. The principal amount invested is safe and secure, providing peace of mind to investors.
Flexible Investment Options: Investors have the flexibility to choose the investment amount and tenure according to their financial goals and risk appetite. Additionally, tax-saving fixed deposits are offered by various banks and financial institutions, providing investors with a range of options.
Easy Accessibility: Tax-saving FDs are easily accessible and can be opened at most banks and financial institutions. This makes them a convenient option for individuals looking to avail of tax benefits without undergoing complex investment processes.
Using an FD calculator to calculate your tax-saver Fixed Deposit’s maturity amount
To use an FD calculator, here are the steps you can follow:
Access an FD Calculator: Start by finding an FD calculator tool online, which is readily available on many financial websites or banking apps.
Enter Deposit Details: Input the principal amount you plan to invest in the tax-saving FD, along with the deposit tenure and the prevailing interest rate.
Choose Interest Payment Frequency: Select the frequency of interest payouts, whether monthly, quarterly, annually, or at maturity.
Review Calculated Results: Once you've entered all the necessary details, the FD calculator will generate a detailed summary of your investment's growth.
Analyse Maturity Amount: Review the calculated maturity amount, which includes both the principal and accrued interest over the investment period.
Adjust Investment Parameters: If necessary, adjust the investment parameters, such as the deposit amount or tenure, to optimise your returns and tax savings.
Using an FD calculator is especially beneficial for tax-saving fixed deposits as it helps investors understand the potential returns and tax benefits associated with their investment. By comparing different investment options and scenarios, investors can determine the most suitable deposit amount and tenure to maximise their savings and tax benefits.
Conclusion
Tax-saver FDs are an excellent investment option if you have a long-term investment horizon. You can earn attractive rates on your investment and earn tax benefits of up to Rs 1.5 lakh on your deposits. However, you cannot break your tax-saver FDs before maturity whatever the circumstance or the reason, so, do choose wisely and only proceed if you can afford to part company with your money for the duration.
