Ask your parents where you should park your salary and the term ‘’fixed deposit’’ is bound to come up. This may seem like a smart option when you have a limited income and all you’re looking to do is save , but consider the pros and cons before you choose FD as your preferred investment.
- A Guarantee: A Fixed Deposit is one of the most reliable investment avenues that will tell you exactly how much money you will receive at the end of the term.
- Safety: You receive a higher rate of interest than a traditional savings account and it is considered to be one of the safest investment options.
- Illiquid: Fixed deposits have a pre-agreed lock-in period, which means you’re at crossroads, should you need some money immediately.
- Rising interest rates: If Mr. Urjit Patel decides to raise deposit rates, you cannot take advantage of the same, as your money is locked.
- Early withdrawal: This means a lesser rate of interest than agreed upon on the deposit certificate, and it will even have a penalty.
- Taxation: Most people tend to disregard that post-tax returns you get from an FD are much lower than say, something like a debt fund. Capital gains of FDs are taxed at the same slabs as your income, which will reduce your overall return.
- Doesn’t beat inflation: In the long run, FDs post-tax may not even beat the inflation rate. The cost of education and healthcare grows in leaps and bounds in comparison to the inflation rate, which means that investing in an FD will not help you make these payments in the future.
There are plenty of other avenues of long-term investments that will offer you better returns and better terms than a fixed deposit -. Research is key before choosing where to invest, and understanding the risks involved is of utmost importance.
We have done the research and selected funds that are much better than FDs here.
*All returns are indicative basis past performance. Actual performance can vary.*