As Indians, we have a history of saving money through fixed deposits(FD). We love fixed deposits more than any other saving or investment option. The surety of a fixed rate of interest and confidence in the banking system has made FD a darling among other financial products. While a fixed deposit is a good saving option, there are a few mistakes that many people make.
Fixed deposits can help you to achieve your financial goals. Saving money in a fixed deposit with no clear intention is a mistake that many of us are guilty of. This results in breaking the FD before the maturity date and on the other hand, the corpus is still below the maturity amount. The right way to go ahead would be to invest in an FD with a timeline that closely matches to the time horizon of our financial goal. E.g., if you want to buy a laptop in one year, then having a one-year FD will be the right option than taking a 3 year FD because it will pay a higher rate of interest.
Investing in FDs of different tenures can be used to fulfil financial goals of varying time horizons. Instead of saving the entire amount of money in one FD, you have multiple FDs of different maturity period based on your financial goals. For e.g., you want to open an FD of Rs. 1 lakh. After reflecting on your goals, you realised that to fulfil one financial you will need Rs.70,000, which is three years away and the other Rs. 30,000 will be required in a year to have a bike ride to Ladakh. Hence, instead of having one FD, you can have two FDs of 1 year and 3 years each. This will aid you in planning for your finances better and achieve your financial goals with ease.
We love being in our comfort zone. When we want to open a fixed deposit, our home bank is what comes to our minds. It is because we are familiar with the working of that bank as we have our savings account and have done a recurring deposit or fixed deposit in the past with the bank. However, what we don’t realise is that we may lose out higher interest rates. Public sector banks generally give the lowest interest rate on their deposits. Private banks such as Kotak Mahindra Bank give better interest rates than the PSU banks. Also, non-banking financial institutions and companies issue fixed deposits that fetch a higher rate of return than bank deposits. But it also carries a higher risk. Hence, it is essential to research types of fixed deposits and earn higher interest.
It is seen that many fixed deposits do not get a chance to mature. It is because life always tends to surprise us when we least expect it. Emergencies spring up out of nowhere whether it is the ceiling falling down, hospitalisation due to a minor accident etc. And the first thing that goes under the hammer when we come face to face with our emergencies is the fixed deposit. With the FD, our financial goal also goes down in the drain, or we have to start anew again. An emergency fund would have helped you to tide over the emergencies, and your FD would have been safe, generating higher returns. So have an emergency fund within at least 6 months of expenses(not income) in a savings account or liquid fund which will help you during times of emergency.
Many people make a fundamental mistake of opening several fixed deposits to avoid TDS. It is a wrong assumption that having small amounts in various fixed deposits will help us to save tax. TDS and tax are two different things. TDS is deducted at source by the payer of the income while tax is payable by the earner. By having multiple fixed deposits of small amounts, one can only avoid TDS, but not the tax. The interest received on FD is taxable as per the tax bracket of the individual. Further, having multiple FDs only adds to inconvenience as you will now have to track the different fixed deposits.
Here were the top 5 mistakes that people make when opening fixed deposits. Fixed deposits are a safe and sure way of saving money and achieving your financial goals. If you keep these mistakes in mind, investing in the fixed deposit will be a smooth ride.
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