Fixed deposits are still the preferred investment option for most people because people feel that their money is safe in it. If you also have such a misconception, then get rid of it because it is not so at all. It is true that FD is much safer than the market, but even in this your money is not 100% safe. Most people are not aware of this. Know here 5 risk factors of Fixed Deposit.
Deposit is not completely safe
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 up to Rs 5 lakh of the investors’ deposit remains safe because DICGC guarantees insurance of only up to Rs 5,00,000 on bank deposits. Apart from this, it is also worth noting that this guarantee is not only for the money of FD, but in this, a total amount of Rs 5 lakh is insured by adding the amounts of savings account, current account, FD, RD or any other scheme. If you have invested more than this in the bank, then that money will be lost.
Penalty on pre-mature withdrawal
There is a liquidity issue in bank FD. If you break the FD before time, then you have to pay a pre-mature penalty on it. The penalty amount on FD may vary from bank to bank. Usually, this penalty is between 0.5%-1%. If you have invested in a tax saving FD, then you can withdraw it even before the period of 5 years. But in this case, you do not get tax exemption.
Tax on interest
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.
Same interest rate
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, getting FD done for a long time can sometimes lead to loss. If the bank increases the interest rates in the meantime, then also you do not get the benefit. And if you have to pay tax on the interest after this, then there is more loss.
Better options than FD are available for profit
The interest that is received on FD in today’s time is not very high. Most banks give interest between 6 to 8 percent on FD. If it is very high, then a bank can offer interest up to 9 percent. But you have hardly heard of more than this in today’s time. 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 considerably. People have been seen getting 15 to 20 percent returns in mutual funds.