With the high inflation rates and volatility common in today’s market, Fixed Deposits (FD) have become an attractive investment avenue for most investors. If you have a lot of surplus in your saving accounts, it might be best to invest in Fixed Deposits, a step taken by most conservative investors.

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But there are many myths and misconceptions about Fixed Deposits that are restricting their growth potential. You should be aware of these if you’re planning on investing in one.

Myth #1—Fixed Deposits are only offered by banks

One of the most absurd myths about Fixed Deposits is that these handy investment options are solely offered by banks. The truth is quite to the contrary; apart from privatised and nationalised banks, lending companies and NBFCs (Non-Banking Financial Companies) can help you invest in FDs as well.

In fact, when you invest in Fixed Deposit schemes offered by NBFCs like Bajaj Finserv, you’re likely to enjoy better interest rates than those offered by most banks apart from handy features like flexible tenor options and online account access.

Companies and NBFCs offering Fixed Deposits are governed by guidelines by section 58A of the Companies Act.

Myth #2—TDS (Tax Deducted at Source) on FD is Unavoidable

It is true that Fixed Deposits are fully taxable; however, not everyone needs to pay taxes on FD. Your returns from FD are included as a part of your total income under ‘income from other sources.’ If your interest income exceeds Rs. 10,000 in one financial year, TDS will be 10%.

Minors, housewives, senior citizens, and people living on zero taxable income don’t need to pay taxes. You need to submit form 15G or form 15H (depending on your case) to avoid TDS.

If you’re over 60 years with no income, you won’t be losing any of your money on taxes, and enjoy a better interest on FD returns. For instance, senior citizens earn an additional 0.25% interest rate with Fixed Deposits at Bajaj Finserv.

Myth #3—All FDs Offer Tax Benefits

If taxing savings are what you’re after, there are certain things to look for before investing in Fixed Deposits.

Fixed Deposits offer you tax benefits under section 80C of the Income Tax Act. However, tax benefits are offered only on specific deposits; what’s more, you’ll need to lock in your money for at least 5 years for this purpose.

Myth #4—The More your Interest Payouts, The More Interest you Earn on your FD

If you choose to credit your FD quarterly, you’ll lose out on the benefits of compounding. By keeping the interest earning in the deposit, you can earn additional interest as a larger principal amount is created. So, it is best to go in for the compounding feature and have the interest credited after maturity.

Myth #5—Break FD to Avoid Cash Crunch

Many people are of the opinion that breaking FDs before their maturity is the only way of getting back their invested money. However, it is best not to avail this option; you’ll actually end up with a smaller interest amount.

Some companies offer partial withdrawal of funds without any penalties. There are facilities that offer you loan against fixed deposits as well; you can also use your FD as collateral for a loan.

Fixed Deposits are time-tested instruments of investment; and these myths are unfounded. A simple research will show you a number of interesting facts about Fixed Deposits that makes them all the more appealing. Make sure that you compare various FD schemes before investing in one though!

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