Bank Fixed Deposit: Nine disadvantages of investing in FD

Disadvantages of Investing in Bank Fixed Deposit (FD)

1) Diminishing Returns

The disadvantage of investing in fixed deposits is that fixed deposits offer a fixed rate of interest, which is usually lower than the returns offered by other investment options such as stocks or mutual funds. “One of the main drawbacks of fixed deposits is that the rates are usually low compared to other investment options,” said Vineet Khandare, CEO & Founder, MyFundBazaar.

2) fixed interest rate

Another drawback of fixed deposits is that the interest rate is fixed at the time of application. When you open an FD at a fixed interest rate, you continue to get interest at that rate till the end of the term

3) Lock-in period

Once you invest in a Fixed Deposit, your money is locked in for the tenure of the deposit. This means that you cannot access your money until the term is over, even if you have an emergency.

4) TDS

The interest you earn on fixed deposits is taxable income. This means you will have to pay tax on the interest earned, which will reduce your overall returns, said Amit Gupta, MD, SAG Infotech.

fixed deposit interest comes under the category of “Income from other sources”. Your tax rate will depend on your income slab rate as the interest on your FD is applicable on your total income before tax is levied, Khandare said.

5) unbeatable inflation

The return on investment should ideally be higher than the rate of inflation even after taxes are taken into account. The interest rate on fixed deposits, however, is generally lower than the rate of inflation under most circumstances. According to Khandare, if fixed deposits do not provide inflation-beating returns, then it is not a good idea to invest in them as they will not be able to bear the rising expenses.

“The rate of inflation is the rate at which the prices of goods and services increase over time. If the rate of inflation is higher than the interest rate on your fixed deposit, the value of your money will diminish over time,” Amit Gupta, said MD, SAG Infotech.

6) Liquidity

Fixed deposits are not very liquid, which means it can be difficult to sell them quickly if you need to access your money. “With the money locked in an FD, you may not be able to access them in case of an immediate monetary requirement,” Khandare said.

7) No capital gain

Amit Gupta. said that you do not earn any capital gain on A Fixed deposit, This means that you may not make any money from the appreciation in the value of your investment.

8) Bank may go bankrupt

According to Amit Gupta, although fixed deposits are considered a safe investment, there is always a risk of bank bankruptcy. If this happens, you may lose all or part of your investment.

9) Premature Withdrawal Penalty

banks Provide depositors with the option of premature withdrawal from their FDs. However, they have to pay charges for premature withdrawal of deposits. “Banks usually levy a penalty when you opt for early withdrawal of your fixed deposit. Penalty can be levied at the rate of 1% to 3% of the total interest,” Khandare said.

State Bank of India FD Rates – 3% to 7.10%

HDFC Bank FD Rates – 3% to 7.25%

ICICI Bank FD Rates – 3% to 7.10%

Punjab National Bank FD Rates – 3.50% to 7.25%

Axis Bank – 3% to 7.45%

It is important to weigh the pros and cons of fixed deposits before investing your money. If you are looking for a safe investment with guaranteed returns, then Fixed Deposit can be a good option for you. However, if you are looking for higher returns or more flexibility, you may want to consider other investment options.

Disclaimer: The views and recommendations given above are those of individual analysts and not Mint’s. We advise investors to do due diligence with certified experts before making any investment decision.