Fixed Deposit Mistakes You Should Avoid for Better Returns
When you start investing, you will come across a plethora of investment options that offer varying levels of risk. If you’ve been recently initiated into the world of investing, getting started with a lower term FD (Fixed Deposit) can help you ease into the financial world.
Fixed Deposits are one of the most popular investment tools you can invest in, if you’re looking for assured returns. Unlike other high-risk financial products like stocks, mutual funds, or bonds, an FD is a safer and more secure investment route.
That said, there are certain mistakes you should avoid when you’re investing in an FD. Let’s take a look at some of them.
1. Using Up All your Savings
The entire idea of a Fixed Deposit is to let you access the amount when the account matures under the tenure you choose. When you invest all your savings into an FD, you won’t be able to withdraw it with ease, even during an emergency. Ensure that you keep a contingent fund aside for such situations. You can allocate a tenure of 1 to 5 years to your deposit scheme, at your own discretion.
2. Forgetting to Include the Tax
Though investing in FD might earn you some tax breaks, the income you earn from it is still taxable under your current income slab. If your income falls under the 20-30% tax slab, you should reconsider investing in an FD. Financial institutions like Bajaj Finserv let you avail of No Tax deduction at source on interest payment up to Rs.5, 000 p.a.
3. Ignoring its Liquidity Terms and Conditions
FD can be more liquid than assets like real estate. But you should also keep in mind that it comes at a cost. When you withdraw from an FD, you either end up paying the penalty or gain lower interest rates than the ones you’ve bargained for.
4. Not Being Sure About your Returns
Before you invest, make sure that you’ve checked and compared all the prices in the market. For instance, Bajaj Finserv, which has a FAAA (highest CRISIL stability rating) and MAAA (highest ICRA stability rating), offers you an interest rate of approximately 8.75-8.90% on the amount you deposit. You’d also get an additional 0.25% of interest on the FD if you’re a senior citizen.
Depending on the institution you go with, you get to choose from different payout frequencies, interest rates, and tenures.
5. Using an FD to Compensate for Inflation
Though Fixed Deposit Interest Rate get influenced by the current rate of inflation, in the long run, they invariably fall behind. If you’re planning on increasing your purchasing power during inflation, an FD isn’t the greatest idea. You’d need to take calculated risks like investing in stocks, mutual funds, or real estate to benefit from long-term investment.
Before you dive into investing, stay on top of the latest market news and analysis. Read up on the term and conditions of the investment you’re planning to make before you sign up for anything.