Advantages of Fixed Deposits
There are many avenues available in today’s market to invest your money and multiply your wealth. However, fixed deposit remains to be the favourite option, especially for the conservative investors. We list down few tips before you invest your money into fixed deposits (FD)
Fixed Deposits aren’t completely safe
The biggest reason people prefer FDs over any other avenue is because of its risk free attribute. However, fixed deposits too aren’t entirely safe. Deposit Insurance and Credit Guarantee Corporation (DICGC) provides security for deposits up to Rs 1 lakh per customer per bank. Therefore, if you have Rs 3 lakh to invest, it is advised to split the amount and invest it in three different banks.
Ladder your investments
As said earlier, distributing your investments to different banks is an advised move. However, freezing your money for a long period of time at low rate of interests needs to be avoided as well. Therefore, ladder your investments. Invest money in different banks with different tenure and maturity period. So, there is a good sum of money available for you when needed.
Premature withdrawals invite a penalty
Many times we fall prey to lucrative offers provided by banks. For instance, if a fixed deposit is available to you at a rate of 9% for a year and 9.5% for five years, don’t fall for the longer tenure. There is a high possibility that you might require money in the near future and premature withdrawal comes with a penalty.
TDS is only an interim tax
The interest earned on your fixed deposit is completely taxable. For instance, if the interest earned from your fixed deposit is more than Rs 10,000, then the tax will be deducted as per the defined rate, at source. Also, if you fall in the higher tax bracket, then you are likely to pay a higher tax.
Income incurred from FDs is clubbed with yours
The income earned from your fixed deposit is clubbed with your annual income. So, if you feel that you might get away with the taxation hassles by investing in a fixed deposit under your spouse or children’s name, you will still be taxed. However, here the income will be added under the income of the giver and accordingly the tax procedures will be carried.