5 myths about Fixed Deposit that you thought were true

A fixed deposit is one of the most preferred investment avenues for investors looking for guaranteed returns. While a fixed deposit is quite popular as an investment, there are several myths associated with it. These myths may make it difficult for investors to maximise their returns with fixed deposits.

Read along to familiarise yourself with the right information on fixed deposits, so you can grow your savings easily.

1. How safe is your money in a company fixed deposit?

A company fixed deposit offers higher returns than a bank FD, but the safety of your savings is a big question. Invest smartly by striking a balance between attractive returns and safety, consider researching before investing.

Here are some factors to remember, when conducting your research:

Net Interest Margin

A Net Interest Margin (NIM) of 4% or more indicates good financial management, as NIM reflects the difference between interest earned on loans and interest paid on deposits. Thus, the higher a company’s NIM, the safer your deposits.

You can choose to invest in a company FD like Bajaj Finance Fixed Deposit, which has maintained an annualised NIM of 11.08%.

Capital Adequacy Ratio

A higher Capital Adequacy Ratio (CAR) of 18% or more indicates the ability of the institution to meet its obligations and improve business while absorbing losses without needing to dilute equity. Bajaj Finance has a strong CAR of 25% with the liquidity of Rs. 15,800 crores as of March 31, 2020. This indicates the safety of your savings with this FD.

Safety ratings

Amid today’s volatile economic climate, several reputed rating agencies have downgraded ratings for most banks and NBFCs. However, it is important to invest in company FDs with high safety ratings.

Thus, investing in a safe option like a Bajaj Finance Fixed Deposit, with the highest ratings of CRISIL AAA/ STABLE and [ICRA]AAA(Stable), is one of the best options. These are the highest ratings, which indicate the highest safety of your money. This FD offers you guaranteed returns and is not affected by market fluctuations. Senior citizens can earn an attractive interest and get benefits like flexible tenor.

2. Is it impossible to avoid tax on FD?

While your investment in a fixed deposit is taxable, it would be false to say that there is no way to avoid tax. You are taxed, if your income exceeds Rs. 5,000 from a company in a single financial year. For senior citizens, this limit stands at Rs. 50,000 on a bank FD.

Also, if you don’t have any other source of income and your total income is lower than the tax bracket, you are exempted from paying tax. You just need to submit form 15G or 15H to avoid TDS.

3. Do frequent interest payouts means higher income?

You can choose to invest in a fixed deposit offering periodic interest payouts. With a Bajaj Finance Fixed Deposit, you can choose the frequency of your interest payouts, from monthly, quarterly, half-yearly to annual options.

However, choosing a monthly interest payout doesn’t mean you’d gain a higher interest income. Rather, the FD interest rate is applicable for 1 year and the gains are divided, based on the payout frequency that you choose. You can plan your deposits in advance using the FD amount calculator, which helps you ascertain the best way to grow your savings, before you invest.

Contrary to popular beliefs, a non-cumulative FD offers you lesser interest income than a cumulative FD, which adds your interest earnings to your corpus and allows your savings to compound over time.

4. Are premature fixed deposit withdrawals allowed?

In case you need to fund an urgent expense, consider taking a Loan against Fixed Deposit. By taking a Loan against FD, you can fund your expenses without losing interest on your deposits. You can get these loans at nominal rates from your issuer, and use your FD as a collateral easily.

In today’s economic scenario, it is wise to lock in the attractive FD interest rates, before they come down. You can consider investing in a Bajaj Finance online FD right away, wherein existing customers can enjoy a paperless online FD process that helps you invest within a few minutes and make your savings grow easily.