What is Time Deposit Account (TD)?
A Time Deposit Account (TD), also known as a Fixed Deposit or Certificate of Deposit (CD), is a type of financial account offered by banks and other financial institutions. It is an investment instrument where you deposit a specific amount of money for a fixed period of time, typically ranging from a few months to several years.
Benefits of Time Deposit (TD)
- Higher Interest Rates: TDs generally offer higher interest rates compared to regular savings accounts. This allows you to earn more on your deposited funds over time, helping your money grow at a faster rate.
- Guaranteed Returns: When you open a TD, the interest rate is fixed for the entire duration of the deposit. This means you have a predictable and guaranteed return on your investment, regardless of any changes in the market or fluctuations in interest rates.
- Capital Preservation: If you have a specific financial goal or need to preserve a certain amount of money, TDs can be an excellent option. Since the funds are locked in for a predetermined period, you are less likely to spend or use the money impulsively. This helps you maintain and protect your capital.
- Low Risk: TDs are generally considered low-risk investments. They are typically offered by reputable financial institutions and may be insured by deposit insurance schemes, providing protection for your funds (up to a certain limit) even if the institution encounters financial difficulties.
- Flexibility in Maturity Periods: TDs offer flexibility in choosing the maturity period that suits your needs. You can select a short-term or long-term deposit, depending on your financial goals and liquidity requirements. Short-term deposits provide quick access to your funds, while long-term deposits offer higher interest rates for a more extended period.
- Easy to Open: Opening a TD account is a straightforward process. You can usually open an account online, over the phone, or by visiting a local branch of the financial institution. The required documentation is minimal, typically including identification and proof of address.
- Financial Discipline: TDs promote financial discipline by encouraging you to set aside a specific amount of money for a fixed period. This helps you develop a savings habit and avoid unnecessary spending, as the funds are not easily accessible before the maturity date.
- Diversification: TDs can be a valuable component of a diversified investment portfolio. By allocating a portion of your funds to a TD, you can balance risk and potential returns. Diversification helps spread your investment across different asset classes, reducing overall portfolio risk.
Who Can Open Time Deposit Account?
- Single Adult: TD opened by a single adult in their own name.
- Joint Account (up to 3 adults) (Joint A or Joint B): TD opened by a group of up to three adults, either with signatures required from all account holders (Joint A) or with any one account holder authorized to transact (Joint B).
- Guardian on Behalf of Minor: TD opened by a guardian on behalf of a minor.
- Guardian on Behalf of Person of Unsound Mind: TD opened by a guardian on behalf of a person of unsound mind.
- Minor Above 10 Years in Their Own Name: TD opened by a minor above 10 years old in their own name.
Deposits, Minimum and Maximum Investment
(i) Account Type: TDs available for 1 year, 2 years, 3 years, and 5 years.
(ii) Minimum Investment: Rs. 1000, in multiples of Rs. 100. No maximum limit.
(iv) Tax Benefit: 5-year TDs qualify for section 80C benefits under the Income Tax Act, 1961.
- Interest payment: Annually. No additional interest on unwithdrawn interest.
- Interest credit: Annual interest can be credited to the savings account upon request.
- Account Opening form.
- Two Photographs of account holder
- KYC Documents like Identity & Address Proof
- Repayment of Deposit: The deposit amount will be repayable after the expiration of 1 year, 2 years, 3 years, or 5 years (depending on the chosen duration) from the date of opening.
Extension of Tenure
(i) Extension of TD Account: The depositor has the option to further extend the TD account for another tenure, which matches the initial duration of the account.
(ii) Extension Period: The TD account can be extended from the date of maturity within the prescribed period. For a 1-year TD, the extension can be done within 6 months of maturity. For a 2-year TD, it can be done within 12 months of maturity. For 3-year or 5-year TDs, the extension can be done within 18 months of maturity.
(iii) Request for Extension: At the time of opening the TD account, the depositor can submit a request for the extension of the account from the date of maturity.
(iv) Application for Extension: To extend the TD account after maturity, the depositor needs to submit a prescribed application form at the concerned Post Office, along with the passbook.
(v) Applicable Interest Rate: The interest rate applicable to the respective TD account on the day of maturity will be applicable to the extended period.
Premature closure of Time Deposit Account
(i) Withdrawal Restriction: No deposit can be withdrawn before the expiry of six months from the date of deposit.
(ii) Early Closure (6 months to 1 year): If the TD account is closed after 6 months but before 1 year, the interest rate applicable will be the Post Office Savings Account interest rate.
(iii) Premature Closure (2/3/5 years): If a 2/3/5-year TD account is prematurely closed after 1 year, the interest calculation will be as follows:
- For completed years: Interest rate will be 2% less than the TD interest rate (i.e., 1/2/3 years).
- For part period less than a year: Post Office Savings Account interest rates will be applicable.
(iv) Premature Closure Process: The TD account can be closed prematurely by submitting a prescribed application form along with the passbook at the concerned Post Office.
Pledging of Account
(i) Pledging or Transferring TD Account: A TD account can be pledged or transferred as security by submitting a prescribed application form at the concerned Post Office. The application should be supported by an acceptance letter from the pledgee.
(ii) Transfer/Pledging Authorities: The TD account can be transferred or pledged to the following authorities:
- The President of India or Governor of the State.
- Reserve Bank of India (RBI), Scheduled Banks, Co-operative Societies, or Co-operative Banks.
- Corporations (public or private), Government Companies, or Local Authorities.
- Housing Finance Companies.
Q. How Long Can I Open a Td Account for?
A. TD accounts are available for various durations, such as 1 year, 2 years, 3 years, or 5 years. The duration options may vary depending on the financial institution.
Q. What is the Minimum Deposit Amount for a TD Account?
A. The minimum deposit amount required to open a TD account varies between financial institutions. However, it is commonly set at Rs. 1000 or higher.
Q. Can I Withdraw My Deposit Before the Maturity Date?
A. Generally, TD accounts have a lock-in period, and premature withdrawals are not allowed before the expiry of a specific period (usually six months). However, certain financial institutions may offer premature withdrawal options with associated penalties or reduced interest rates.
Q. How is the Interest Calculated on TD Accounts?
A. Interest on TD accounts is usually calculated annually or as per the terms specified by the financial institution. The interest rate is applied to the principal amount for the duration of the TD.
Q. What Happens to the Interest Earned on a TD Account?
A. The interest earned on a TD account is typically added to the principal amount and is either paid out at the end of the TD’s tenure or reinvested.
Q. Are TD Accounts Taxable?
A. Yes, the interest earned on TD accounts is subject to taxation as per the prevailing income tax laws of the country. It is advisable to consult a tax advisor for guidance on tax liabilities.
Q. Can I Extend My TD Account After Maturity?
A. Yes, in many cases, you can extend your TD account after maturity for a similar or specified tenure. Extension options, terms, and interest rates may vary among different financial institutions.