5 Myths about Fixed Deposits That You Thought Were True

SIPs, liquid, balanced, debt funds, tax-free bonds, PPF, EPF, and other alternative assets may be popular. But some say nothing is as safe and easy as a fixed deposit.

It’s a common choice when it’s time to write down investments at the end of a fiscal year. But all this certainty and ease of life come at a price! By reading this article, you’ll learn the truth about some of the most common myths about fixed deposits and the interest they earn. Read on to learn more about investing in FD so you can use what you learn the next time you want to buy one.

What does a fixed deposit mean?

Fixed deposits are one of the most common ways to invest in FDs. Even though SIPs, liquid, balanced, and debt funds, stock picking, tax-free bonds, and other investment strategies get a lot of attention, the truth is that nothing beats the security and ease of a fixed deposit. Fixed deposits should be part of your portfolio, even though they don’t give you the best returns and aren’t tax-friendly. If you know of another investment strategy other than investing in FD that is as simple, safe, liquid, free of monitoring, and risk-free, please let us know. Because there isn’t any. The trade-off is less tax efficiency and much lower returns, but in many cases, returns may not be the only thing that affects your investment decisions.

If you are starting to feel better than many fixed deposits mainly sitting unused in your bank accounts can now be justified, you can give a word of caution. On your fixed deposit, you are getting interested. Taxes can also be taken out by the bank (TDS). But you could owe more taxes. And if you still need to pay those bills, you could be in danger. Yes, when you file your income tax returns, you must figure out how much more tax you have to pay because of the interest on your fixed deposit and bear it. This could be in addition to any TDS the banks may have thought about. If you have been ignoring that, you should also know that not knowing the law is not a good reason to get out of trouble. If you correctly handle your bank’s fixed deposit interest, you could avoid getting into a lot of trouble with the tax man.

5 Myths about Fixed Deposits

TDS (tax deducted at source)

Fixed deposits are taxed, which is true, but only some have to pay taxes. Yes, you did read it right. Interest from a fixed deposit is added to a person’s total income under “income from other sources.” So, if you earn more than Rs. 10,000 in interest in a financial year, your TDS will be 10%. If a company’s deposits earn Rs. 5,000 in interest in a fiscal year, TDS is taken out of those deposits. People who are too young, stay at home with their kids, are very old, or have no or very little money could avoid TDS. Forms 15G or 15H must be turned in to avoid TDS. If you are over 60 and don’t have a job, you won’t lose any money to taxes, and you might even get a higher return on your FD.

FD Provides Tax Benefits

If you’re interested in investing in FD, you need to know that not all of it saves you money on taxes. Section 80C of the Income Tax Act says that only certain deposits can get tax breaks. For example, you must lock up your money for at least five years to get tax breaks. The deposits also can’t be taken out or used during this time.

Fixed Deposits That Receive Regular Interest Payments

There are two kinds of fixed deposits: one where you get interest payments at regular intervals and the other where you get the full amount (the principal plus bank interest) when the account matures. The second option gives you more benefits. How? That’s the magic of adding things up. The bank always multiplies and adds up the interest it pays on a cumulative deposit.

Cash Crunch is an Early Withdrawal

Most banks let you take money out of your fixed deposits in parts if you need to get money out for an emergency. At the same time, the balance that has yet to be paid off keeps earning interest.

Investing in FD in the Name of a Family Member

Giving money to a spouse or child is not taxed. When investing in FD, however, the product is added to the giver’s income and taxed correctly. Therefore, keep in mind that the interest on any fixed deposits you make in a family member’s name will be taxed as part of your income. So it’s best to stay away from it.

How do bank fixed deposits work?

Most people think wrongly that fixed deposits can only be made at public or private banks. You can talk to some well-known businesses and NBFCs that offer fixed deposits to regular customers. The downside is that interest rates at these institutions are likely to be higher than those at banks. On the other hand, you might not get appealing benefits from these institutions, like the ability to change the length of your fixed deposit, access to your account online, or insurance coverage.

Conclusion

Fixed deposits and investing in FD should be part of your portfolio, even though they don’t give you the best returns and aren’t the best way to save on taxes. This investment choice is easy to understand, comes with a guarantee, is always available, doesn’t need to be tracked, and has no risk. Even though fixed deposits and the interest they pay may seem simple, there are a lot of misconceptions about them. You can visit Piramal Finance to learn more about these and make a good choice.