Features such as surety of returns and preservation of capital have ensured that fixed deposits continue to be the favourite investment alternative for the masses. However, this trend is changing with the changes in the investor’s preferences towards equity and mutual funds.
Despite such shift in preference, FDs continue to be the most obvious investment avenues for the investors, predominantly owing to the surety of the returns which it offers. Today, banks also provide Fixed Deposit calculator which helps an investor to find out the maturity value of his investments and decide about making the same. The acceptability of fixed deposits as security for loans up to 90 percent of FD amount and choice of flexible maturity has also improved the interest of investors in FDs as an investment option.
Taxation impact on FDs
Well you might be aware that the interest is offered by FD, however, it’s imperative for an investor to know that interest received on the fixed deposits are subject to income tax as per the personal income tax slabs. Also, it’s not unusual to find entities such as banks, corporates and small savings schemes offering a different rate of returns on FDs of similar nature. One must check all the various alternatives and select the fixed deposits which offer you the most efficient after-tax return as per one’s risk appetite.
Interest Rate is Changeable
Though opening FD account in any trusted bank is highly secure, interest rates can still be moved by the market rates. So, at the time of inflation, the typical 8% -7% of interest rate that you get on your FD may be prone to change. It could perhaps reduce the returns on the maturity of such FD, causing unnecessary disappointments. So, it’s sensible that you use Fixed Deposit calculator provided by most of the banks to ascertain your likely maturity amount.
Untimely withdrawal
A quite often ignored aspect of the fixed deposit investments is the clause regarding premature withdrawals. Opting for premature withdrawal could be penalized by a zero interest or lower rate of return based on the FD’s terms and conditions. Hence, you must acquaint yourself with the effects of such premature withdrawals before going for an FD. Today, there are banks offering premature withdrawal any penalty or charge. Therefore, if you think that you might require the amount which you’re going to invest any time in the near future then you might open FDs in such banks.
Clubbing of Income
Most of the assessees deposit their money in the name of spouse or children, however, it doesn’t save them from the burden of tax. Returns on investment would be clubbed in income of such assessee. So, in case a husband opens an FD in his wife’s name, an interest which is earned on such FDs would be treated as the income of the husband and would be taxed accordingly.
Where FD investments are done in minor children’s name, the interest income which is earned on those FDs would be clubbed with parent’s income whose earning before including the income of the minor is more. Though, one could claim exemption up to INR 1500 annually per child.
FD’s aren’t risk-free
Fixed Deposits that you keep with the banks are insured by DICGC (Deposit Insurance and Credit Guarantee Corporation) but this doesn’t mean that you’re insured entirely. The insurance provided by DICGC is limited INR1 lakh per bank account holder across all the branches of such bank.
So, if you’re thinking of investing INR 4 lakhs in fixed deposits, split the same into 3-4 different banks for safeguarding your investment. Another key benefit of doing such exercise is that in case of an emergency you won’t have to break the entire deposit. It means you might have to bear the penalty charges for such premature withdrawal only for an amount which you require, and rest of your money continues to grow.
So, the next time when planning to invest in Fixed Deposits ensure to keep the aforesaid in mind.
so where can retired persons can keep their retirement funds for immediate short-term & mid-term use other than elss or such other instruments, not just for saving taxes but to earn more interest & withdraw it whenever required in emergency?