New Delhi. Bank Term Deposits (FDs) remain the most popular investment option when it comes to investing in India. Most Indians prefer to invest in FDs on a regular basis. Rising FD rates as of May 2022 have also made it a great investment opportunity. Not only employees or seniors, but also millennials are showing interest in investing in time deposits.
Money experts believe that while FDs are a great investment option, they also have downsides. Therefore, an investor must be aware of this. There are many advantages to investing in FD, but there are also some disadvantages. Today we tell you about the 9 disadvantages of investing in FD.
1. Falling returns
The disadvantage of investing in fixed deposits is that fixed deposits offer a fixed rate of interest, which is usually lower than the return on other investment options such as stocks or mutual funds.
2. Fixed Rate
Another downside to fixed-term deposits is that the interest rate is fixed at the time you apply. If you open an FD with a fixed interest rate, you will continue to receive interest at that rate until the end of the term.
3. Embargo
Once you invest in an FD, your money is locked for the duration of the deposit. This means that even in an emergency, you can only access your money after the term has expired.
4. TDS
The interest you earn on FD is taxable income. This means that you have to pay tax on the interest earned. FD interest falls under the “Income from Other Sources” category.
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5. Inflation
Even taking taxes into account, the return on investment should ideally be higher than the rate of inflation. The interest rate for FD is usually lower than the inflation rate. If FD isn’t offering above-inflation returns in such a situation, investing in it isn’t a good idea. If the inflation rate is higher than the interest rate on your FD, the value of your money will decrease over time.
6. Liquidity
You have a liquidity problem with FD. If you break the FD when necessary, you will have to pay a prepayment penalty for it.
7. No Capital Gains
You will not make any capital gains with FD.
8. The bank could go bankrupt
FD is considered a safe investment, but there is always a risk of bank failure. In this case, you may lose all or part of your investment.
Also read this – Not 6 or 7 percent, here 9.6% super duper interest will be available on FD, the money has to be invested for 5 years
9. Penalty for Early Resignation
Banks offer depositors the option to withdraw their FDs early. However, they have to pay fees for the early withdrawal.
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Tags: Bank FD, bank rate, FD prices, fixed deposits, inflation, Tips for making money
FIRST RELEASED : May 13, 2023 4:58 PM IST
