Things to Learn About Fixed Deposits That Help in Better Investments

Although there are a variety of investment options available today, Indians have a special liking for fixed deposits (FDs). The reason behind this is that a fixed deposit investment is simple and easy, offers decent returns, and is completely risk-free.

FD

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Locking the funds in your savings account for a fixed deposit account is a smart move- there are no two ways to it. However, there a few things that you may want to keep in mind before you go about it:

Premature Withdrawals

A lot of people invest a large portion of their savings in fixed deposits impulsively. This is a bad move because when they need money down the road, they have to liquidate the entire account. For instance, their requirement could be Rs. 50 thousand, but they have to liquidate the full FD even if it’s of Rs. 3 lakhs. It hurts the investment two ways:

  • The interest rate is calculated on the basis of the time passed till the point of premature withdrawal (even if the original maturity period is bigger), which is usually lower.
  • A penalty of 1 or more percentage points is imposed on the total amount.

So, instead of making one big fixed deposit investment. It’s better to invest in multiple small accounts.

TDS Applicability

Don’t be surprised if you earn a lower amount from a fixed deposit investment upon maturity. This is because if the interest earned on FD is above Rs. 10,000 in a year, then the bank will deduct a 10% TDS on the same before disbursing the funds to you. However, if

The Hidden Risk

The insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation to the banks is capped at Rs. 1 lakh per customer. So, if your bank fails and has to be closed down, you may end up getting only up to Rs. 1 lakh irrespective of the total amount invested. So, if possible, you should make FD investments in different banks rather than making them all in the same bank.