Fixed Deposits Glossary
Annual Yield
Is the effective annual rate of return taking into account the effect of compounding interest. Its utility lies in its ability to standardize varying interest-rate arrangements into an annualized percentage number for comparison.
Compound Interest
The ability of a fixed deposit in India to generate interest, which is then reinvested in order to generate further earnings is known as compound interest.
Deposits
It is a sum of money lodged in a bank for the purpose of earning interest. A deposit is repayable according to terms of acceptance
Demand Deposits
These deposits are all deposits which are repayable immediately to the customer whenever he demands them; these include balances in current accounts, savings accounts and term deposits which have become due for payment but are yet to be paid
Deposit Insurance
Insurance of bank deposits is intended to help banks and to give a measure of protection to depositors, from the loss arising from the failure of banks. Depositors are protected to the extent of Rs. 1 lakh under this scheme. The scheme is administered by Deposit Insurance and Credit Guarantee Corporation of India Ltd. (DI & CGC) – a subsidiary of Reserve Bank of India (RBI).
FCNR
FCNR deposits stands for Foreign Currency Non-Repatriable account deposits. This is a Fixed Deposit Foreign Currency account and not a savings account. Deposits in this account can be made in any of the major currencies like US Dollar, UK Pound, Canadian Dollar, Deutsche Mark, Japanese Yen and Euro.
Fixed Deposit Account
Fixed Deposits in India are bank deposits for a fixed or specified period chosen by the depositor and are repayable on expiry of that period. Such deposits generally carry comparatively higher rate of interest depending on the time span.
Future Value
The original amount plus the compound interest thereon, stated as of a specific future date.
Joint Account
A bank account that is owned together (jointly) by two or more people. The depositors can decide whether transactions require the signatures of all parties or whether one party can take actions on his/her own.
Know Your Customer(KYC)
KYC norms were introduced by the RBI to ensure customer identification and help control financial frauds, identify money laundering & suspicious activities. To comply with this requirement, banks require the following documents for new depositors – photos, PAN card copy, identification proof and address proof.
Maturity Date
The date on which the principal amount of any debt instrument becomes due and is repaid to the investor and interest payments stop.
Nomination
Banks ask their account holders to make nominations which mean that they should nominate persons to whom the money lying in their accounts should go in the event of their death. Nomination can be made in account opening form itself or on a separate form indicating the name and address of the nominee. The account holders can change the nomination any time.
Non-Resident Accounts
Non-Resident bank accounts are those, which are maintained by Indian nationals and Persons of Indian origin resident abroad, foreign nationals and foreign companies in India. Bank branches can open ordinary non-resident accounts in the names of private individuals provided initial deposits for opening the accounts are received from abroad in an approved manner or the initial amount is tendered in foreign currency while on a visit to India or transfer of funds from the existing non-resident account of the same person.
NRO
NRO stands for Non-Resident Ordinary account. It refers to the savings or Fixed Deposit account of a Non-resident Indian in a bank in India. This is a Rupee account. Interest earned in this account is taxable. The account can be jointly held with a resident Indian. The principal and interest in this account are non-repatriable.
Principal
The original amount invested is called the principal amount.
Recurring Deposit or Cumulative Deposit Account
Under such bank account, a depositor is required to deposit (multiples of Rs 5/ or Rs 10/ are accepted in his account every month. This deposit is usually available from 1 to 5 years. The rate of interest charged by banks on such accounts depends on the period but is better than savings bank account because this account is like a Fixed Deposit Account. Banks introduce such deposit account to inculcate the habit of saving among people by offering higher rate of interest.
Savings Account
It is a deposit account intended for funds that are expected to stay in for the short term, one can also issue cheques from the same. The savings account interest rate is determined by the Reserve Bank of India and is common across all banks. As of date,it stands at 3.5% p.a.
Simple Interest
Simple interest is calculated by multiplying the interest rate by the principal by the number of periods. It ignores the effect of compounding and is suitable for calculating interest on short term deposits.
Sweep Account
Many Banks have introduced a savings cum fixed deposit product called a “Sweep Account”. Here the account holder decides the minimum amount to be kept in his/her savings account. Any excess over it automatically gets transferred to a fixed deposit account. Whenever cash is needed,the bank can just transfer or 'sweep' in funds to the savings account.
Tax Deducted at Source(TDS)
As per the tax rules, any person/institution making payments on Salaries, Rent, Interest, Commission etc. required to deduct tax before making payments. This deduction is called Tax Deducted at Source (TDS). In the case of banks, TDS is deducted only if the interest earned (both paid and accrued) is more than Rs. 5000 in a single branch. The bank also has to file the appropriate form (Form 16A) annually showing the various details of the deductions made and Deposit of Tax thereon. This form is needed file filing the annual tax return for the individual.
