Key fixed deposit rules and regulations

Explore key fixed deposit rules and regulations to make informed financial decisions. Understand terms, interest rates, and maturity details for smart investing.
Key fixed deposit rules and regulations
3 min
08 April 2024

Fixed deposits (FDs) are a popular investment vehicle for risk-averse investors looking for stable returns to balance their portfolios. Investors can park their funds in FDs for a fixed period to enjoy assured fixed-interest earnings without risking their capital. These safe investment avenues are governed by a set of rules and norms. Knowing these fixed deposit rules and regulations helps investors better manage their investments.

We have prepared the following comprehensive guide to help investors familiarise themselves with old and new FD rules.

Two types of FDs

We can classify FDs into the following two broad categories based on their payout frequency:

  • Cumulative fixed deposit: In cumulative FDs, the interest is compounded annually or quarterly and paid at maturity along with the principal amount. The maturity period for these FDs can vary from 7 days to 10 years. This type of fixed deposit account is well-suited for investors with long-term goals who want to maximise their earnings through the power of compounding.
  • Non-cumulative fixed deposit: Non-cumulative FDs allow you to receive interest payout at regular intervals—monthly, quarterly, semi-annually, or annually. You can select an interest payout frequency to suit your liquidity needs. This type of fixed deposit is perfect for retirees or individuals seeking a regular source of income to meet their expenses.

General regulations governing fixed deposits in India

The following guide carefully outlines general fixed deposit rules to help you make smart financial choices for the future:

  • Deposit amount: Banks and NBFCs define specific minimum and maximum thresholds for fixed deposit accounts. Typically, the minimum amount ranges from Rs. 1,000 to Rs. 15,000, while there are no specific caps on the upper limit. Moreover, public sector banks offer lower minimum deposit requirements than their private counterparts.
  • Tenure and premature withdrawal: Fixed deposits come with flexible tenure options, usually ranging from seven days to several years or more. This makes them apt investment vehicles for different financial goals with varied time horizons. You can also access your saved funds before the maturity date to meet emergency expenses. However, such premature withdrawals on your FD account are subject to penalties in the form of an interest rate reduction.
  • Interest rates: While the current fixed deposit interest rates depend on the RBI’s monetary policies, banks and NBFCs offer varied FD interest rates based on factors like deposit tenure and investor type. For instance, most financial institutions offer higher interest rates for senior citizens. Corporate FDs like the Bajaj Finance FD offer higher interest rates of up to 8.85% p.a., ensuring better returns than bank FDs. 
  • Interest taxation: The interest income generated from FD investments is subject to taxation under the Income Tax Act, 1961. Your interest earnings from the FD are added to your total annual income and then taxed according to the applicable tax slab. Reviewing fixed deposit income tax rules is essential when estimating your returns from the FD investment. 
  • Tax exemption: Five-year tax-saver FDs offer tax benefits under section 80C of the Income Tax Act. Under this section, you can claim a tax deduction of up to Rs. 1.5 lakh, enjoying the dual benefit of earning interest income and saving on taxes.
  • TDS on FD interest: Banks and NBFCs deduct TDS (Tax Deducted at Source) on interest income if it exceeds Rs. 40,000 in a financial year. This limit is set at Rs. 50,000 for senior citizens. However, you can avoid TDS deductions by submitting Form 15G or 15H (senior citizen) if your total income is below the taxable limit.
  • Loans against FDs: Loans against fixed deposits provide a flexible finance option to access immediate liquidity without sacrificing interest earnings. This fixed deposit rule lets you use your FD funds as collateral to secure a loan. While the loan regulations vary, financial institutions can offer loans of up to 95% of the deposit value.
  • Insurance cover and credit rating: Bank FD investments up to Rs. 5 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This makes FDs one of the safest investment vehicles to park your hard-earned funds. Credit ratings of corporate FDs ensure their reliability. For instance, corporate FDs like the Bajaj Finance FD have the highest ICRA AAA (Stable) and CRISIL AAA (Stable) ratings, guaranteeing deposit safety.

Basic eligibility requirements

Evaluating eligibility requirements is also essential when discussing fixed deposit rules and regulations. FDs are safe and reliable investment vehicles that are easily accessible to all. While the eligibility criteria for different banks and NBFCs vary, most are open to resident nationals, NRIs, senior citizens, members of a HUF, minors under guardianship, proprietary and partnership firms, trusts, and associations.

Investors need to furnish the following set of documents to prove their eligibility while booking an FD:

  • KYC documents: Passport, Aadhaar Card, Driving License, Ration Card, Senior Citizen ID Card
  • Address proof: Utility bills, Passport, Bank Statement with cancelled cheque, Certificate issued by the Post Office.
  • PAN Card

This is a general list of documents and can vary depending on the financial institution’s internal policies. For instance, some NBFCs and banks may require additional documents like the Certificate of Incorporation and Board Resolution sanctioning the investment from public and private limited companies. It is prudent to carefully check the eligibility criteria and document requirements on the lender’s website before booking an FD.

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As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.