Common Myths About the Fixed Deposit that You May Have Believed

With guaranteed, risk-free returns and attractive interest earnings, Fixed Deposits definitely deserve a special place in your portfolio. An FD is the one investment option that is simple, liquid, and highly secure – offering an excellent investment opportunity to most investors in India.

However, despite the promise of secured earnings, several misconceptions surrounding fixed deposits discourage people from investing. Here we will explore these myths and why you should stop believing in them:

Myth 1: You Can Only Open a Fixed Deposit with Huge Funds

Often, people avoid investing in fixed deposits, believing they need more funds to open an FD account. Well, this is far from true. These days you can easily open a fixed deposit with an amount as low as Rs. 10,000. And what's more, you can instantly book an online fixed deposit through a digital process from the comfort of your home.

Myth 2: All Fixed Deposits Offer Tax Benefits

If you're looking for a tax-saving fixed deposit, it is important to understand that not all FDs offer this benefit. As per section 80C of the Income Tax Act, you can avail of tax benefits only on specific fixed deposits – typically with a lock-in period of at least five years.

Additionally, if your annual income from FDs does not exceed Rs. 10,000, you are exempted from paying taxes.

Myth 3: Regular Interest Payments Fetch Higher Returns

After investing in a fixed deposit, you have two options when it comes to receiving interest payments. You can either receive the income regularly (monthly, quarterly, half-yearly, or yearly) or opt for cumulative interest payment at maturity.

And contrary to popular belief, you can fetch better returns by taking interest payments at maturity with the option of compounding. In cumulative online fixed deposits, the interest paid by the bank gets accumulated – which is absent in the case of regular payouts – and earns higher returns at maturity.

Myth 4: In Case of Emergency, Premature Withdrawal is the Only Option

Financial emergencies can knock on your door at any time. When that happens, you have the easy option of part-withdrawal. That's right! Most banks these days offer this feature – you can simply withdraw the amount you need for any emergency and continue earning interest on the balance amount.

Or, you can even opt for the auto-sweep facility, where you can transfer the funds from your online fixed deposit to your linked savings account. This saves you the trouble of withdrawing the FD prematurely and losing out on the interest earnings.

Myth 5: Closing an Online Fixed Deposit is Difficult

Closing your FD is as simple and hassle-free as opening an online fixed deposit. While the process of closing an FD is not tedious, it varies from one bank to another. Further, most banks levy a foreclosure penalty if you choose to close the FD account. Therefore, it is best to keep this as a last resort for a financial emergency.

The Bottom Line

Opening an online fixed deposit is simple, fast, and you have the assurance of secured returns! Now that you're aware of these common myths about fixed deposits, it is time you enjoy the many financial benefits FDs offer and watch your funds grow!