Know more about the Main disadvantages of a Fixed Deposits
While fixed deposits gain you more financial returns and higher interest rate in terms of saving and investment upon maturity or completing a fixed tenure which is why most investors deposit their money as FD for a fixed tenure. There are some main disadvantages of fixed deposit, read on to know more about the disadvantages of having a fixed deposit.
No or less flexibility to access your money
Low return on investment
While fixed deposits always offer you a higher interest rate than any other regular savings account, the return on investment is often less compared to shares, bonds etc. While it is a secured and assured deposit without any risks providing maximum security for your money, the interest rate increases only by a small percentage.
Time period of fixed deposit
When you invest your money as fixed deposit for a defined term at an interest rate, the rate of interest will not change during the tenure; but if the current market rate goes up, you may still end up paying a lesser rate of interest which was decided upon making the deposit. To overcome this issue, you may choose to deposit money for a shorter term instead of a longer term.
Tax on interest rate of fixed deposit
There is no tax benefit; you will have to incur tax on your interest rate of fixed deposit depending on the slab rate at which you pay tax. Your tax rate for interest will be deducted from your personal account in the bank. To avoid tax, you can deposit small amounts of money in different banks or invest in provident fund.
Penalty charge for breaking fixed deposit
If you decide to withdraw your fixed deposit either completely or partially before it attains maturity, then you will have to incur a penalty charge as decided by the bank, also the interest rate will be that as decided upon deposition of money in FD. You can choose to deposit the money for a shorter tenure, if you need the money soon.
While fixed deposit is an effective way to invest and make a saving, there are a few drawbacks you will have to experience along with it. So make a wise decision before making an investment on fixed deposit with the bank.
