Market Volatility? Keep Your Money Growing with Fixed Deposits (FDs)

The Indian stock markets have been experiencing a significant downturn. The Nifty 50 index has dropped by approximately 14% from its peak in September 2024, marking a five-month losing streak—the longest since 1996. In response to this volatility, investors are shifting their focus to fixed-income instruments like Fixed Deposits (FDs) for stable and secure returns.

Fixed Deposits: A Safer Alternative with Attractive Returns

Unlike stocks, FDs offer predictable and low-risk returns. As of February 2025, many Indian banks are providing competitive interest rates on fixed deposits. For example, Ujjivan Small Finance Bank is offering 8.05% p.a.* for an 18-month Fixed Deposit. Senior citizens are eligible for an additional 0.50%* interest.

These rates are significantly higher than traditional savings accounts, making FDs a preferred choice for conservative investors. That said, Ujjivan also offers high-interest Savings Accounts where you can earn up to 7.50%* on your account balance.

RBI’s Rate Cut: Why You Should Lock in FD Rates Now

The Reserve Bank of India (RBI) recently cut the repo rate by 25 basis points to 6.25% to boost economic growth. While this move benefits borrowers, it could lead to lower FD interest rates in the future.

Financial experts advise investors to lock in current higher FD rates before they start falling. This strategy ensures better long-term returns, especially for those who depend on FDs for passive income.

Taxation on Fixed Deposits: What Investors Need to Know

Interest earned on FDs is taxable and added to the investor’s total income, subject to income tax slab rates. Additionally:

• TDS (Tax Deducted at Source) is applicable if the annual interest exceeds ₹50,000 (for general citizens) or ₹1 lakh (for senior citizens). This TDS exemption limit is applicable for FY 2025-26.
• To avoid TDS deductions, investors with incomes below the taxable limit can submit Form 15G or 15H at the start of the financial year.
• Tax-saving FDs (5-year lock-in period) qualify for deductions under Section 80C of the Income Tax Act, allowing up to ₹1.5 lakh in deductions per year. Please note that you can claim this deduction only if you have opted for the old tax regime.

Why Invest in Fixed Deposits?

1. Higher Interest Rates

With banks like Ujjivan Small Finance Bank, you can earn up to 8.05% p.a.* (up to 8.55% p.a.* for senior citizens) on your investment. The interest rate remains fixed throughout the tenure provided you don’t opt for premature withdrawal.

2. Guaranteed Returns

Unlike equity investments, where returns are uncertain, FDs offer fixed interest rates over a predetermined tenure. This makes them ideal for conservative investors who prioritize stability over high but uncertain gains.

3. Convenience

You can book an FD online from the comfort of your home. No branch visits or heavy paperwork required. All you need is your PAN, Aadhar and an online device (phone, laptop or PC) for Video KYC. The entire FD booking journey is 100% online.

4. Guaranteed Returns

Unlike equity investments, where returns are uncertain, FDs offer fixed interest rates over a predetermined tenure. This makes them ideal for risk-averse investors who prioritize stability over high but uncertain gains.

5. Tax-Saving Benefits

5-year tax-saving FDs allow deductions up to ₹1.5 lakh under Section 80C. However, interest earned is taxable under your income slab, with TDS applicable if interest exceeds ₹50,000 for general investors (₹1 lakh for senior citizens).

6. Liquidity & Overdraft Facility

While FDs have a fixed tenure, they offer premature withdrawal options subject to terms and conditions. You can also take an OD or overdraft against your FD. Check with your bank to know your overdraft limit/eligibility.