Even today, crores of people consider FDs as the best way of investment, thinking that there is no risk of money sinking and guaranteed returns.
But have you ever wondered whether this FD, which is considered the ‘safest’, is increasing the value of your money or not? Many experts believe that FDs do not have the power to beat inflation. If you are also one of those people who get happy just by looking at guaranteed returns, then wait! Before investing money in an FD, definitely know some of its drawbacks, which people either do not know about or ignore.
The interest that is received on FDs today is not very high. Most banks offer interest between 6 and 8 percent on FDs. If it is very high, then a bank can offer interest up to 9 percent. But you can get much better interest than this in mutual funds. There is definitely market risk in mutual funds, but if you invest in it through SIP, then this risk is reduced significantly. People have been seen getting 15 to 20 percent returns in mutual funds.
The government also charges you tax on the interest received on FD. While filing ITR, the interest received on FD is counted as income. Whereas nowadays there are many such schemes on which you get better interest than FD and also get tax exemption.
Once you get an FD, you get the same interest on it for the entire tenure. You do not get even a rupee more than that. In such a situation, many times there is a loss on getting FD for a long time. Even if the bank increases the interest rates in the meantime, you do not get the benefit of it. And if you have to pay tax on the interest after this, then there is more loss.
You cannot withdraw money before the tenure for which you have fixed the money. If the depositor withdraws money from his fixed deposit account before the maturity date, then the bank charges a penalty for it. This penalty is between 0.5%-1%.
Usually people consider bank FDs to be completely safe and invest a large amount of their money in it. Although the money in FD is safe, but if the bank defaults in any condition, then only the deposit of up to 5 lakhs of the investors remains safe. If the FD is more than this, then you will have to bear the loss because the Deposit Insurance and Credit Guarantee Corporation (DICGC) gives insurance guarantee of only up to Rs 5,00,000 on bank deposits.