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5 myths about fixed deposits that you thought were true

  • Highlights

  • Company FDs offer higher returns than bank FDs

  • Choose company FDs with high safety ratings

  • Learn how to avoid TDS on your FDs

  • Breaking an FD is a simple process

Fixed deposits are safe investment options that help you gain greater returns, so you can grow your wealth. However, there are some common myths about FDs that we often end up believing. Rather than letting them impact your investment experience negatively, take time to familiarise yourself with the right information.

Here are some myths that you need to watch out for.

1. Company FDs offer more interest but aren’t safe

The truth is that company FDs can offer higher returns while ensuring higher safety than bank FDs. You must compare lenders, based on their safety ratings before selecting one. Bajaj Finance Fixed Deposit, for example, has MAAA (Stable) rating by ICRA and FAAA/stable rating by CRISIL.

This FD offers you guaranteed returns and is not affected by market fluctuations. Senior citizens can earn an attractive interest, and enjoy other benefits like flexible tenor and the option to choose your corpus as per your financial plan.

2. It is impossible to avoid tax on FDs

While FDs are taxable, it would be false to say that there is no way to avoid tax. You are taxed, only 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. To fill 15G form without mistake, follow this "how to fill form 15G" guide.

3. More frequent interest payouts means higher income

Non-cumulative FD enable you to choose the frequency of your interest payouts. However, choosing monthly payouts, for example, does not necessarily mean that your income will be higher.

The interest rate is applicable for a period of a year and the gains are divided based on the payout frequency that you choose. A non-cumulative FD offers you less interest than a cumulative FD which adds your interest earnings to your corpus and allows your savings to compound.

4. It is difficult to break an FD

Breaking an FD is a simple process and depends on your fixed deposit provider and the terms governing your FD. You just need to be aware of the premature liquidation terms before you invest, to save yourself from heavy penalties. All you have to do is fill the application form, attach relevant documentation, pay any applicable charges and your FD will be liquidated.

Investment options to secure your child’s future

5. You can get money from an FD only by withdrawing it prematurely

This myth is absolutely untrue. Once you have invested a sum of cash in an FD, you will receive the amount, with interest upon maturity. If you withdraw prematurely, you could have to pay fines or penalties, which will be deducted directly from the amount that is due to you. Besides, another way of getting funds from your FD is to take a loan by using it as collateral.

Knowing the right information will help you understand the true worth of investing in FDs. As a result, you will be able to make the right financial decisions and multiply your wealth smartly.

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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