Domestic Term Deposits

Domestic Term Deposits

Domestic term deposits are an investment instrument where investors can allocate their funds to a financial institution for a predetermined tenure. The investor is eligible for interest on the deposits made throughout the investment's life cycle, which can range from anywhere between one month to five years.

Investors often park their savings in this product as the interest rate on the investment is immune to market volatility. The investors can collect the accumulated interest with the principal at the time of maturity of the domestic term deposits. The investor can also select the Non-Cumulative option, where they can bank the interest amount weekly, quarterly or yearly.

Many financial institutions such as banks, Non-Banking Financial Companies (NBFCs), building societies, and credit unions offer domestic term deposits to their customers. The customer can avail of this lucrative investment product to accentuate their savings.

Features and Benefits of Domestic Term Deposits

The Domestic term deposits allow the depositors to safeguard their savings from the uncertainty of the market risks. Here are the following features and benefits of the Domestic Term deposits that make it such an attractive investment option:

Rate of interest

The interest rate the depositor stands to make on their domestic term deposits is fixed and isn’t hampered by external factors. The depositors will receive a fixed income till the maturity date and assist them in stimulating their savings. In this time of uncertainty and volatile market conditions, this investment option provides an oasis to investors to park their savings.

Tenure

The investment tenure is predetermined even before the investor makes a deposit. The investor can navigate the diverse set of investment plans offered by the institutions and select the one that complements their investment goals. A longer tenure might ensure a higher interest rate, but it is not applicable in all cases. The investor should compare and compute the ratios between interest rate and tenure.

Interest Payment Strategy

The investor can select the frequency of the interest payments they are eligible to receive on their Domestic Term deposits. The investor can choose to select either the cumulative or the non-cumulative option.

Map out Savings

The depositor who has selected the Domestic Term deposit option knows beforehand the amount to be received at maturity. The interest rate is fixed, and the tenure of the investment is predetermined.

Provision of a Roll-Over Term

The depositor of the Domestic term deposit scheme can also avail of the option to roll over and continue their investment in this lucrative investment scheme. This can be done as the funds are allocated into another domestic term deposit scheme.

Credit Against Deposit

Investors with a Domestic Term Deposit account can obtain a loan against the deposited amount. However, the loan amount should not exceed 60%-70% of the amount deposited, and the interest charged on loan is generally higher than the interest rate on the domestic term deposits.

Tax Policy

The income earned from the interest is eligible for tax under the Tax Deducted at Source (TDS). If the interest earned in a financial year is more than Rs 10,000, 10% of TDS is deducted from such income. However, investors can also look into many tax-saving term deposit schemes that financial institutions offer.

Deposited Amount

Generally, the minimum amount an investor must make to establish a domestic term deposit account is Rs 1,000. However, the minimum amount might vary from institution to institution. There is no cap on the maximum amount to be deposited in a term deposit.

Insurance

Per the Deposit Insurance and Credit Guarantee Corporation (DICGC), a savings deposit maintained in a certified banking institution is eligible for insurance up to 1 Lakhs. These developments are announced by the Reserve Bank of India (RBI).

Premature Withdrawal Penalty

The tenure on the domestic term deposits is predetermined. If the investor wants to withdraw before the maturity date of the deposit, then they would have to bear the penalty charges. The interest amount they are eligible for also reduces in such cases. The penalty is levied at the financial institution's discretion where the investment is parked. Investors should choose a tenure beforehand where they wouldn’t have to make premature withdrawals.

Eligibility Criteria for Domestic Term Deposits

Domestic term deposits are an investment option for investors to ensure lucratively and assured returns. The following individuals and entities are eligible to open a term deposit account with any bank or financial institution.

• Indian Citizens
• Proprietorship Firm
• Hindu Undivided Family
• Partnership Firms
• Limited companies
• Trusts

Documents required for Domestic Term Deposits

The eligible individuals and entities require the following documents to deposit their savings in Domestic Term deposits. It is to be noted that the documents a financial institution might ask are with respect to the nature of the entity.

For Individuals, Sole Proprietorship Firms and Hindu Undivided Families

The following documents are required if the above-mentioned apply to open a Term Deposit Account:

• Identification Proof such as Passport, driving license and Pan Card
• Passport-Size photographs
• Address Proof

For Family Trust

The following documents shall be submitted by a trust in case they want to park their deposits in the Domestic Term Deposits scheme.

• A photocopy of the trust deed and Registration Certificate
• A photocopy of trustee resolutions authenticates the board members responsible for the establishment and operations related to the account.
• Passport size photographs and identity proofs of the board members.

For Associations

The following documents are required for submission if an association is inclined to open a Domestic Term Deposits account.

• Association Bye-laws
• A photocopy of the resolutions by the board members authenticates the individuals responsible for establishing and operating domestic term deposits.
• Passport size photographs and identity proofs of the board members.

For Partnership Firms

The following documents shall be submitted if a partnership firm wants to invest in the Domestic term deposits.

• The partnership deed
• A letter from every partner of the firm authenticating the establishment of the domestic term deposits account.
• Passport-size photograph of the individual responsible for account operations.

Types of Domestic Term Deposits

Financial institutions offer the following types of Domestic Term Deposits to investors who are inclined to invest in a secure and lucrative investment option:

Cumulative Term Deposits

Cumulative Term Deposits are one of the most availed of term deposits as the investor collects the entire interest amount accrued at the time of maturity along with the principal. Such term deposits are popular among long-term investors looking to stimulate their savings.

Non-Cumulative Term Deposits

This is a popular scheme for investors looking for a regular source of income from the investments made. The interest paid to the investors at regular intervals can be monthly,

quarterly or annually.

Short-Term Deposits

Investors generally invest in a short-term deposit when they don’t want to lock in their investment for an extended period. The tenure on such an investment ranges from 1 to 12 months. This allows the investor to earn interest with liquidity simultaneously.

Long-Term Deposits

This scheme is availed of by long-term investors looking to park their savings for a longer tenure to earn substantial returns. The tenure in a long-term deposit can range from anywhere between a year to 10 years. The interest rate offered by financial institutions is generally higher when compared to short-term deposits.

Sweep-In Facility Term Deposit

This is a facility provided by institutions where a savings account holder can allocate their funds to a term deposit if it exceeds the predetermined limit. If there is a deficit in the savings account, the funds can be allocated back to the savings account.

Deposit Schemes for Children

These schemes are offered to the customers with the intention of the welfare of the children. Such schemes provide additional benefits to imbibe a habit of savings to facilitate a financially stable future for children.

Senior Citizen Term Deposit Schemes

The senior-citizen term deposits are designed to provide a platform for senior citizens of the country to park their savings. The interest rates provided are also higher than that of the general citizens.

Post Office Time Deposit

Time Deposits is one of the many investment facilities the post office provides. In this scheme, the investor can establish a time deposit with a minimum of Rs 200. The interest rate on a post office time deposit is 7.9% per annum for half a decade. If the tenure exceeds five years, the investment would be eligible for tax exemptions under Section 80C.

Tax-Saver Term Deposit

As the name suggests, the tax saver term-deposits scheme provides tax deductions on amounts up to 1.5 Lakhs under Section 80C of the Income Tax Act. However, it is to be noted that the income from the scheme is taxable in case the amount exceeds Rs 40,000. The interest offered on the tax-saver generally ranges from 5.50%-7.75% per annum.