DO YOU WANT TO KNOW THE SECRET HOW BANKS MAKE MONEY USING YOUR INVESTMENT THAT YOU DO IN FIXED DEPOSITS (FDS)?
Take a tour of the content to learn about the revealed secret. Make sure you read the complete content to gather relevant information and take informed investment decisions.
UNDERSTANDING FIXED DEPOSITS (FDS)
Let us understand Fixed Deposits in detail. Know everything about fixed deposits, returns, tax implications, liquidity, risks, etc.
Fixed Deposits (FDs) – Overview
A Fixed Deposit is an investment instrument facilitated by banks and non-banking financial companies. It allows investors to park their surplus money for a fixed tenure against a fixed annual interest. The accumulated interest is paid back to the investors along with the principal at the end date of maturity.
Return and Tax Implications on FDs
You get interest rate ranging between 3% to 5.25% subject to tenure, amount, and bank type. This return further reduces due to tax implications. The interest you earn on fixed deposits under the provision of the Income Tax Act, 1961 is added under the head “Income from other sources” in your Income Tax Return. The interest income is taxed at the rate applicable to you.
Your bank will deduct a TDS of 10% if interest income on your FD in a financial year exceeds Rs. 10,000 subjects to submission of your PAN card/details. The tax applicable is 20% if PAN is not submitted with the bank. If you earn Rs. 30,000 as interest income within the chosen FD tenure, you will have to pay Rs. 3000 as TDS.
Do you know why banks encourage investors to invest in bank FDs?
Why does banks promote fixed deposits?
> Financial institutions like bank have to pay you low rate of interest.
> The interest is not paid to you periodically, so banks do not have the liability to invest manpower to manage periodic returns.
> Banks get to use the fixed deposits amount for a specific tenure in more productive investment options.
> Banks have to offer a nominal annual interest on FDs ranging between 3% to 5.25% to regular Indian investors & between 3.4% to 5.75% to senior citizens.
> Fixed deposits (FDs) help banks reinvest the amount in higher yielding products like corporate bonds, government bonds, and other fixed income securities.
HOW TO EARN MORE RETURN THAN FDS?
HAVE YOUR EVER THOUGHT HOW BANKS USE YOUR FD TO EARN MONEY?
Know the Secret of Banks
THE BIG SECRET DECODED!!!
We take the example of (State Bank of India) SBI, the leading public sector bank in India.
Let us compare the returns of 2 different products of the same bank known to be secure investment option.
A. Product 1 – SBI Fixed Deposits (FDs)
SBI offers FD interest rates of 2.90% – 6.10% p.a. to the general public and 3.40% -6.60% p.a. to senior citizens for tenures ranging from 7 days to 10 years. The interest rates of SBI Tax Saving FDs are 5.65% p.a. for the general public and 6.45% p.a. for senior citizen depositors.
B. Product 2 – SBI Bonds
What is the rate of interest for SBI Bond?
State Bank of India 7 to 9.95%
What Banks do with your fixed deposits?
The money that you invest in bank fixed deposits is used by the bank to generate higher returns.
Now the important thing to note here is that the same bank SBI has two different products available for investors – First product above is the Bank FD offering annual interest ranging between 2.90% – 6.10%. The second product is the SBI Bonds that is offering a fixed annual interest upto 9.95%.
In the above two different investment options, the bank pays the maximum interest upto 10% annually. The Bank invests the money of FD customers in the fixed income securities, to buy Bonds that offers higher return ranging between 7 to 14% along with the advantage of low risk, liquidity, and flexibility of tenure.
You can witness that the interest earned by the SBI bank here is much more than the interest paid to FD investors and to the investors buying the SBI issued bonds. Thus, the Bank here uses your amount in fixed deposits to only earn money to pay back the agreed interest to you but also earns profit for the bank.
Ask yourself the question – Why not invest directly in SBI bonds instead of investing in the SBI fixed deposits?
> Why not invest in SBI Bonds giving higher returns than the bank FD.
> Both the products are offered by the bank and are a fixed income security product.
> Your investment in both the option is safe. Infact your capital in bonds is more safe than fixed deposits.
> The capital in FDs is covered to an amount up to 5 lakhs by an insurance company.
> The risk of capital loss in bonds is minimal.
> If you choose to invest in government bonds or corporate bonds having AAA rating , you are at no to minimal risk.
> Your capital in government bonds is protected by sovereign guarantee and backed by the government of India.
THUS, YOUR DECISION TO INVEST IN SBI BONDS CAN HELP YOU EARN MORE INTEREST THAN YOUR INVESTMENT IN FIXED DEPOSIT.Also, Fixed Deposits and Bonds if compared, you will find
> Bonds more secure
> Multiple bond type to choose> Option to choose from short-term and long-term bonds
> Return can be availed at varied intervals including monthly, quarterly, half-yearly or yearly
> Liquidity allows you to sell bond in the secondary market
MORE ABOUT BONDS
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