Common Myths About Fixed Deposits Debunked

*This is in paid partnership with Bajaj Finserv.

Fixed deposits are among the most popular and trusted investment options for risk-averse individuals. Known for providing a secure return on investment, they continue to be favoured by many despite the rise of newer financial instruments. However, like many traditional investment options, FDs are often surrounded by myths that may discourage potential investors.

Let’s take a closer look and debunk some of the most common misconceptions about these investments.

1. Myth: FDs Have Low Returns Compared To Other Investments

One of the most common myths surrounding fixed deposits is that they provide low returns compared to stocks, mutual funds or other market-linked options. While it's true that FDs offer a fixed rate of return and may not generate the high returns of riskier investments, they provide something invaluable: stability.

Investments like mutual funds can suffer significant losses in volatile market conditions. An FD, on the other hand, guarantees a return regardless of market fluctuations. This stable and assured return makes FDs one of the best investment choices for individuals who prioritise capital preservation.

2. Myth: Interest Rates On FDs Are Fixed For All

Many people believe that FD interest rates are the same across the board. In reality, the interest rates vary based on several factors, such as the bank or financial institution offering the product, the tenure of the investment and the type of FD. For example, senior citizens are often offered higher interest rates to encourage their investment.

Using an FD calculator can help you assess the return on your investment more accurately. This tool allows you to input details like tenure and deposit amount, helping you estimate how much your money will grow over time.

3. Myth: You Can't Withdraw Money Before Maturity

Another widespread misconception is that once you invest in an FD, your money is locked in until the end of the term. While it's true that FDs are designed for long-term savings, most banks and financial institutions offer an option for premature withdrawal. However, it’s essential to note that premature withdrawal usually comes with a penalty in the form of a reduced interest rate.

For those concerned about emergencies, some banks also offer flexible options like partial withdrawals or loans against FDs. These features provide liquidity without completely forfeiting the benefits of the FD.

4. Myth: You Can’t Invest In An FD If You Have A Low Income

Contrary to popular belief, FDs aren’t reserved for high-income earners. Many financial institutions allow individuals to open an FD with a relatively low initial deposit, making this investment option accessible to a wide range of income levels. Additionally, there are short-term deposit options that allow individuals to invest for as little as seven days, making FDs more flexible than people think.

If you’re unsure how much to invest or what your potential returns could be, using an FD calculator can help you figure out the best strategy based on your current income and financial goals.

5. Myth: Only Banks Offer FDs

It’s a common misconception that only banks offer FDs. In reality, several financial institutions, including non-banking financial companies, also provide this investment option. In fact, some NBFCs offer competitive interest rates that can be higher than what’s available at traditional banks.

Exploring different providers is key to finding the best FD for your needs. Don't limit your search to just banks; NBFCs could offer better returns or more flexible options suited to your financial goals.

6. Myth: FDs Are Not Tax-efficient

Some people steer clear of FDs because they believe these investments aren't tax-efficient. While it's true that the interest earned from an FD is taxable, there are tax-saving FD schemes available. Under Section 80C of the Income Tax Act, individuals can claim a deduction of up to Rs 1.5 lakh on tax-saving FDs.

These tax-saving options have a lock-in period of five years, but they provide both security and a way to reduce your tax liability. This makes them a smart choice for individuals looking for a safe, tax-efficient investment.

Way Forward: Secure Returns With An FD

FDs remain one of the most secure and reliable investment options, especially for risk-averse individuals. While there are several myths surrounding these investments, the reality is that they offer flexibility, tax-saving benefits, and guaranteed returns that make them a smart choice for a wide range of investors.

Don’t let myths hold you back from a secure financial future. Invest in the best FD options available at Bajaj Finserv today! Calculate your returns with the FD calculator and confidently control your investments.