What are the Myths About Fixed Deposits?
New-age investors may be actively shifting towards investment options like private equity, mutual funds, debt funds, bonds, and more. But for many, nothing beats the safety and assurance of fixed deposits.
As the market grows unpredictable, sending interest rates up and affecting the value of investments, fixed deposits are clearly the popular choice for risk-free investments. However, despite bringing security and liquidity to your investment portfolio, FDs are surrounded by several myths that discourage many investors from investing.
This blog will walk you through the common myths about term deposits that you must stop believing.
Myth #1 Only Banks Offer Fixed Deposits
It is pretty common for new investors to believe that only public and private sector banks offer fixed deposits. However, you can approach various NBFCs and companies to invest in these deposits. While you’ll probably enjoy higher interest rates or more flexible tenure on your deposit, your investment might be less secure than banks.
This is why if you decide to invest in a company FD, it is important to be sure of their credibility before investing.
Myth #2 All FDs Offer Tax Benefits
While FDs are quite popular for offering tax benefits on investments, not all FDs carry this feature. Only certain types of tax-saving fixed deposits come with income tax benefits. If the total interest income from all FDs in a year is less than INR 40,000, the bank cannot deduct TDS. The limit is INR 50,000 for senior citizens.
As per section 80C of the ITA, you can only avail tax benefits on fixed deposits with a lock-in period of at least 5 years. The Bank cannot deduct TDS if the total income from FD is within specified limits.
Myth #3 You Need Large Funds to Open a Term Deposit
Many new investors often avoid fixed deposits, believing they will have to invest a large sum. But that is not true. Today, you can open a fixed deposit account with an amount as low as Rs. 100. This makes it an attractive option for different classes of investors looking to save some funds for a secure future.
What’s more, you can use an online FD calculator to get an idea of expected returns and instantly book your FD online.
Myth #4 Regular Interest Payments Equal Higher Returns
This is a common myth that you can only maximise your FD returns with regular interest payouts. However, this is far from true. Since FD interest rates are fixed, you have two options to deal with your interest income. One, you can receive the interest regularly (monthly, quarterly, half-yearly, or yearly). Or, two, you can opt for cumulative interest payment at maturity.
Now regular interest payouts actually earn less because there is no compounding. On the other hand, with cumulative FDs, you can unlock the potential of compounding – accumulate the interest payments – and earn much higher returns at maturity.
Myth #5 In Case of Cash Emergency, Premature Withdrawal is the Only Choice
If you need funds to manage any financial emergency, you don’t need to withdraw your FD prematurely. Here, you will not only lose interest, but the bank might levy a penalty for premature withdrawal.
Therefore, a better idea would be to opt for the part withdrawal. Most banks today offer this facility, where you can easily withdraw the required amount and continue earning interest on the remaining amount.
Alternatively, you can even opt for a loan against FD. This way, you can get the required amount to handle any financial emergency without losing interest earnings.
Now that you know the various myths surrounding fixed deposits, you can make smarter investment choices. Open a fixed deposit with your preferred bank – it is safe, it is quick, and it assures excellent returns to help you achieve all your financial goals over time.