Investing in fixed deposits is the safest way for investments to get a good return in the future. The returns indeed depend on some specific factors. The factors include the amount you are investing, the fluctuations of interests and the financial institutions, i.e., banks and NBFCs’ policies. During the financial crisis, the middle class often lean towards their fixed deposits instead of taking personal or gold loans. The FD is provided with many benefits for the senior citizens. The senior citizen FD rate is a bit better than the standard ones. The regular fixed deposits are restricted from those relaxations
A fixed deposit is favoured for its high-interest rate and its flexibility. Nonetheless, the chances may be low, but there are some risk factors associated with fixed deposits.
Things to look for before investing in FD
Before investment in fixed deposit, one shall always have to keep the factors in mind that can affect their FD returns at maturity.. Knowing about the risks before investing in a fixed deposit account should be beneficial for you in every aspect. Some of them are given below in the following points.
Risks involved in taxes
Fixed deposits are taxed as per the different tax slabs. If you are above 60, you can expect a relaxation in the tax. Else if your amount is under Rs. 50,000, then there is an exemption under section 80 TTB of IT act. The tax that you will be paying to the government is deducted as per the amount of your investment along with the interest you gather.
Risks involved in liquidity
There are specific lock-in periods available in the case of fixed deposit accounts. You cannot withdraw a single penny out of the fixed amount that you invest until it matures. So for a sudden, if you require money, you cannot withdraw from your fixed deposit account which counts a major discredit of the FD accounts.
Risks involved in inflation
The inflation plays a crucial role in the rate of interests of a fixed deposit account. If the FD returns fail to beat inflammation, you will face loss. Suppose the inflation is 4%, in such case if your FD return is at 6%, it is a good sign. However, if the numbers are vice versa, it will be bad news for you.
Risks involved in the rate of interest
There is a significant risk related to the interest rate as the money is locked in the financial institute or the bank for a fixed amount of time. The fluctuation of interests is variable with the changes in the economy. If the FD interest rate of your respective FD gets higher, you will not be availing any profit from it. It is the prime difference between an FD and a bond structure as prevalent.
Risks involved in the defaults
The default risks are always there in case of fixed deposits. It is true that defaults are hardly seen in prominent financial institutes and banks with reputation, but small banks defaults are seen sometimes. There is a new rule applicable now for getting rid of ruins; each account can tune Rs. 5 lakhs for each version and so the people can divide their money to different accounts for extra assurance.
Risks involved in the reinvestment
This risk comes after your fixed deposit money gets maturity. You indeed got an attractive price, but what you get after that. If you stick to FD again, you have to go on with the currently available process. Thus your long term financial plans may get hampered for this as you cannot expect lucrative returns from your investment.
Keeping in mind about the risks before investing in fixed deposits is always beneficial for investors. Besides the risks, the senior citizen enjoys extra benefits on their deposition in the fixed deposit accounts. Prevalent financial institution rates can reach up to 6.2% per annum over five years of lock-in periods. They can also be taken in a monthly scheme creating a regular source of income and giving peace of mind after your retirement periods. Thus, investment in an FD account can be an excellent way to ensure a handsome return after your retirement.