Fixed deposits are prevalent in India. However, there are some unfortunate misconceptions about these deposits that make many people step away from them. Are you also confused about some factors related to FD and not sure whether they are authentic or not? If yes, then read this article to get the myths, and the facts clarified and then invest in a good fixed deposit.
Know the 5 most common fixed deposit myths
1. Fixed deposits require large investments
Myth: Many people believe that you need a large corpus of money to be able to open a Fixed Deposit (FD).
Fact: Fixed deposits can be opened with any sum of money, whether high or low. You can start a fixed deposit with a sum as low as Rs 1000. You do not need to have a large corpus to invest, as small investments are permitted too.
2. Only banks offer fixed deposits
Myth: Fixed Deposits are offered by Banks only.
Fact: Banks, as well as Non-Banking Financial Corporation, offer fixed deposits.
While all of the private and public sector banks in India offer fixed deposit options, the non-banking financial companies also offer fixed deposits. You should make a comparison to see who offers the best FD rates before you open your fixed deposit.
3. Regular interest withdrawal is a good idea
You have the complete freedom to withdraw the interest earned on fixed deposit at regular intervals. You can withdraw it yearly, quarterly, or monthly.
However, doing so is not the best idea, as you then miss out on the benefits of compounded interest. When you allow the interest to get added to your principal, the fund value increases, and the overall yield earned is higher.
Myth: Withdrawing your interest is a great idea
Fact: Accumulating interest will help you grow your corpus by utilizing the power of compounding!
4. Premature withdrawal is the only option in emergencies
Fixed deposits have a premature withdrawal penalty. So it might not be the best option. However, at times, financial emergencies do strike, and you need to get the money out. During such time, user can choose a against Fixed Deposit, if the requirement is temporary or emergency.
A fixed deposit loan can give you the funds you need without disturbing your investment. You can get up to 75% of the fund value at a low rate of interest. This is a good and much better alternative to premature fixed deposit withdrawals.
Myth: Premature withdrawal of your FD is the ONLY solution for financial emergencies.
Fact: You can also choose for a loan against your FD. This is suggested for a temporary emergency. However, if the financial crisis is serious and not temporary, then withdrawal is a better solution, but not the only one!
5. Closing a fixed deposit is difficult
As stated, a premature fixed deposit withdrawal attracts a penalty. This is why you should look to stay invested in an FD till it matures. But if there is a challenge and you need to close the fixed deposit as a last resort, you can surely do so.
Myth: Premature closure of your FD is inconvenient and is a complicated process.
Fact: These days, the banks offer convenient services such as mobile access through which you can instantly close your fixed deposit, after paying the penalty amount. No one compels you to stay invested if you do not want to do so!
Now that you know more about the facts behind these common fixed deposit myths clear your mind of all doubts and open a fixed deposit at the earliest.
