Busting the Top Myths about Fixed Deposits

Fixed Deposit Schemes are the first thing that comes to mind when you have surplus cash. The straightforward nature of these investments manages to attract even the most cautious investors.
However, there are a few myths about Fixed Deposits that we have endeavored to bust so that you know what to expect from your Fixed Deposit investments.
1) Only banks Offer Fixed Deposit Schemes.
Bank Fixed Deposits are the most popular. However, there are other types of Fixed Deposit Schemes too. NBFCs (Non-Banking Financial Corporations) and corporations also offer Fixed Deposit Schemes.
Many Corporate Fixed Deposits offer higher rates of interest when compared to Bank Fixed Deposit Schemes. Conversely, most banks have better credit ratings compared to corporations.
2) If you need money, you will have to break your Fixed Deposit Scheme.
Most people think they will have to break their Fixed Deposit Scheme by paying early withdrawal charges to cater to emergencies.
If you need money, there is a better way out. You can take a loan of up to 90% of your Fixed Deposit amount instead of breaking your Fixed Deposit investment. This way you can avoid paying the premature withdrawal charges.
If you need money often, you can also opt for a Fixed Deposit Sweep-in account.
3) A higher frequency of interest payment leads to earning more interest on your Fixed Deposit.
Though banks offer you a choice for selecting your Fixed Deposit interest frequency, your Fixed Deposit interest rate gets calculated once in a year. The same interest amount is then paid out based on the frequency you have selected for receiving your fixed deposit interest amount.
The interest amount remains the same irrespective of the frequency of interest payment.
4) Fixed Deposits are all you need in your portfolio.
Investing the amount required to generate regular income into a Fixed Deposit Scheme is a good plan. Having Fixed Deposits alone in your portfolio might actually lead you to lose money if your Fixed Deposit interest rate falls below the rate of inflation.
So, it would be a good idea to diversify your portfolio into other investments too.
5) It is not necessary to declare Fixed Deposit interest earnings while filing Income Tax Returns.
It is necessary to include your income tax interest returns as “income from other sources”.
Your Fixed Deposit interest amount is taxable @ 10% if interest exceeds INR 40,000/- per year. If you fall under a higher income tax bracket, then you will be taxed for any interest amount above INR 40,000/- as per your tax bracket.
Declare your Fixed Deposit interest earnings to avoid any discrepancies later on.
6) Every Fixed Deposit Scheme with a 5-year tenure qualifies for Income Tax benefits.
Fixed Deposit investments with 5-years tenure qualify for income tax benefits under Section 80 © of the Income Tax Act of India only if they’re taken from a bank. Not all Fixed Deposit Schemes qualify for tax deduction benefits.
During these 5 years, you cannot withdraw your Fixed Deposit or take a loan against this FD.
Ensure your Fixed Deposit certificate mentions that your Fixed Deposit is for tax-saving purposes.
