We present 5 little-known facts about fixed deposits – you should know this information before you make your investment.
Fixed deposits have been the go-to investment option for legions of people through the ages. They are a fail-safe option that is easy to start. However, before you invest in it, do bear in mind that –
1 The returns on FD may not always beat inflation.
It is heartening to note that fixed deposit rates have risen in recent months. However, do ask yourself if the 6% interest rate will beat inflation when the FD matures. Inflation is defined as the erosion of money every year, and when it rises, it means living costs rise correspondingly. Thus, the projected returns on your FD may not beat inflation. Do your calculations before investing to avoid locking up a large sum of money for little returns.
2 You can create a fixed deposit in your parent’s name to get higher interest rate.
Senior citizens get 0.5% higher interest rate on fixed deposits across banks and financial institutions in India. If you are targeting a certain amount of capital appreciation within, say five years of creating the deposit, then you can factor in a higher amount of growth via the senior citizens’ FD. Consider creating a fixed deposit in your parent’s name – provided they are over 60 years old – so that you can benefit from it when the FD matures.
3 The FD is highly liquid, but…
The fixed deposit is one of the most liquid investment options. You can withdraw the deposit any time after the 6-month cut off limit is over. The deposit money is transferred to your bank account in just a few hours after the bank or NBFC receives your application. However, do note that you will not receive the interest earnings on it, and the financial institution may even levy premature withdrawal charges on you. So, it is better to let the fixed deposit run its course instead of premature withdrawal.
4 Creating an FD in your stay-at-home spouse’s name saves tax.
Here’s a handy little tip you probably were not aware of. If your spouse is not currently employed and does not have any other source of income, then you should consider opening a fixed deposit account in their name. They are not likely to be taxed on the growth of the deposit, owing to their non-employed status. So, the deposit earnings are higher.
5 You must pay tax on interest exceeding Rs 10,000.
Many people invest a large sum of money in a fixed deposit in a bid to get earnings via compounding and interest rate. However, do note that FDs attract TDS if the interest earning exceeds Rs 10,000 in a year. Here’s a tip: instead of opening a single FD with a large amount of money, consider breaking up that amount into two or three tax saving FDs to save on TDS.