Bank’s FD scheme: This 12-Month FD Offers 8.25% Interest — Earn Up to ₹35,000 in Just 1 Year

In today’s fast-paced financial world, it can often be hard to find a secure and reliable way to grow your money. Fortunately, Fixed Deposits (FDs) continue to be one of the most trusted investment options available. For those looking to earn a safe return on their savings, a 12-month FD offering 8.25% interest could be the perfect solution. With this scheme, investors can potentially earn up to ₹35,000 in just 1 year with an initial deposit of around ₹4.24 lakh.

In this article, we will break down the key benefits of this 12-month FD, walk you through how to calculate interest earnings, and help you understand the different factors to consider before investing. Whether you’re new to investing or an experienced saver looking for a reliable option, this guide will provide the clarity and practical advice you need.

12-Month FD Offers 8.25% Interest

Investing in a 12-month FD offering 8.25% interest can be an excellent way to grow your savings with minimal risk. With a potential to earn ₹35,000 in just 1 year from an investment of ₹4.24 lakh, this scheme provides a solid return compared to traditional savings accounts. However, always keep in mind the tax implications, the importance of choosing a trusted bank, and whether the FD aligns with your financial goals.

Before making any decisions, ensure you have researched the best options and understand all aspects of the FD scheme.

What is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is one of the most common and safest investment instruments in India. In an FD, you deposit a lump sum amount of money with a bank or financial institution for a fixed tenure. In return, the bank pays you an interest on your deposit. The interest rate typically varies depending on the bank, the tenure, and whether you are a senior citizen.

Unlike a savings account, where your money remains flexible but doesn’t earn much in interest, an FD locks your money for a specific period, and in exchange, you earn a guaranteed return. This makes it ideal for conservative investors who prefer security over high returns.

Why Should You Consider a 12-Month FD?

Many investors might feel that FD schemes with longer tenures offer better returns. However, there are a few advantages to opting for a shorter 12-month FD:

1. Better Liquidity: Unlike long-term FDs, which may tie up your money for several years, a 12-month FD allows you to access your funds in a short time. This is ideal if you anticipate needing the money within a year but still want to earn a higher return than you would with a savings account.
2. Higher Interest Rates: Many banks offer competitive interest rates for FDs with shorter tenures. For instance, a 12-month FD with an interest rate of 8.25% is an attractive option compared to the typical interest rate in a savings account, which can be as low as 3% to 4%.
3. Reinvestment Opportunities: A 12-month FD gives you an opportunity to reinvest your money every year. If interest rates go up or your financial goals change, you can adjust your strategy at the end of each year.

How Much Can You Earn with 8.25% Interest?

Let’s break down the potential earnings from an FD offering an 8.25% interest rate. Suppose you invest ₹4,24,243 (approximately ₹4.24 lakh) for 12 months in this FD scheme. At the end of the year, you can expect to earn about ₹35,000 in interest. This calculation assumes that the interest is compounded annually and the rate of return remains constant.

Formula to Calculate FD Interest:

The formula to calculate interest for a Fixed Deposit is simple:

Interest = Principal × Rate × Time

• Principal: The amount you invest
• Rate: The interest rate per annum
• Time: The duration of the FD in years (1 year for this case)

So for ₹4,24,243 invested at 8.25% for 1 year, the interest earned is:

Interest = ₹4,24,243 × 8.25% × 1 = ₹35,008.50

As you can see, you’re earning a significant return without taking on much risk.

Tax Implications

One crucial aspect to consider when investing in an FD is the tax on the interest earned. Interest from Fixed Deposits is taxable according to your income tax slab. For example:

• If your annual income falls under the lowest tax bracket (₹2.5 lakh to ₹5 lakh), the FD interest will be taxed at 5%.
• For individuals earning more than ₹10 lakh annually, the FD interest will be taxed at 30%.

TDS (Tax Deducted at Source) is applicable if your interest income exceeds ₹40,000 in a year (₹50,000 for senior citizens). However, if you are in a lower tax bracket or don’t want TDS deducted, you can submit Form 15G/15H to your bank to ensure that no TDS is deducted.

Types of FDs You Can Explore

While a 12-month FD is a good option, there are other types of FDs to consider:

1. Standard Fixed Deposit: Offers a fixed interest rate for a specified period (e.g., 1 year). This is the most common type.
2. Cumulative FD: The interest earned on these FDs is added to the principal at the end of the tenure, resulting in compounded returns.
3. Non-Cumulative FD: Here, the interest is paid out at regular intervals (monthly, quarterly, or annually), making it suitable for investors who need regular income.
4. Senior Citizen FD: Senior citizens are often offered higher interest rates than regular FDs as a way to help them secure a steady income.

Comparison with Other Investment Options

1. Stocks: Stocks can offer high returns, but they come with significant risk. FD interest rates are much lower, but your principal is safe and guaranteed, unlike stocks, where you can lose money.

2. Mutual Funds: Mutual funds, particularly equity funds, may offer higher returns than FDs over the long term, but the risk is also greater. If you’re looking for a short-term, low-risk option, FDs are a safer bet.

3. Bonds: Corporate bonds and government bonds also offer fixed returns but are subject to market risk, unlike FDs, which are risk-free.

Penalty for Early Withdrawal

Most banks impose a penalty for early withdrawal of an FD. The penalty usually ranges from 0.5% to 1% of the interest rate. This can significantly reduce your earnings, and you may end up getting back less than what you initially invested. Therefore, it is crucial to choose the tenure carefully and only lock in your money if you’re sure you won’t need it before the maturity date.

Pros and Cons of Fixed Deposits

Pros:

• Guaranteed returns
• No market risk
• Easy to open and manage
• Tax-saving FDs available

Cons:

• Lower returns compared to stocks and mutual funds
• Penalized for early withdrawal
• Interest income is taxable

Tips for Maximizing FD Returns

1. Choose Cumulative FDs: If you don’t need the interest immediately, opt for cumulative FDs where the interest gets compounded, helping you earn more over time.
2. Consider Laddering FDs: This strategy involves opening multiple FDs with different tenures so you can take advantage of changing interest rates and liquidity.
3. Invest in Senior Citizen FDs: Senior citizens are often offered higher interest rates, so if you’re eligible, it might make sense to invest in these schemes.
4. Reinvest Upon Maturity: If you don’t need the funds immediately, consider reinvesting the maturity amount to keep earning interest.

Safety of Small Finance Banks

Small finance banks offer higher interest rates, but many investors are concerned about their safety. While the risk is higher than with large commercial banks, they are still regulated by the Reserve Bank of India (RBI) and insured by DICGC. This means that your deposits are insured up to ₹5 lakh in case of a bank’s insolvency.

Impact of Inflation on FD Returns

Although FD investments are safe, the returns may not keep up with inflation, especially when the inflation rate exceeds the interest rate. For instance, if inflation is at 7% and your FD return is 8.25%, the real return after accounting for inflation is just 1.25%. This is why many investors look for higher-return investments when aiming for long-term financial goals.

FAQs About 12-Month FD Offers 8.25% Interest

1. What is the interest rate on a 12-month FD?

The interest rate for a 12-month FD is currently 8.25% per annum for certain banks like Ujjivan Small Finance Bank, Suryoday Small Finance Bank, and others.

2. How much can I earn from a ₹4.24 lakh investment in a 12-month FD?

With an 8.25% interest rate, you can earn approximately ₹35,000 in interest from a ₹4.24 lakh investment over one year.

3. Is the interest earned on FDs taxable?

Yes, the interest earned on Fixed Deposits is subject to tax according to your income tax slab. TDS may apply if the interest exceeds ₹40,000 in a financial year (₹50,000 for senior citizens).

4. What happens if I withdraw my FD early?

Early withdrawal of your FD typically incurs a penalty, reducing the interest rate and possibly the returns you would have earned.

5. Is my money safe in small finance banks offering FDs?

Yes, deposits in small finance banks are insured by the DICGC up to ₹5 lakh, ensuring your money is safe in case of the bank’s insolvency.

6. How can I maximize returns on my FD?

To maximize returns, consider opting for cumulative FDs (where interest is compounded), investing in higher-tenure FDs, and reinvesting upon maturity.