• Upasana Mondal

Bank Fixed Deposits, how TMI is killing it.



Most of us are suffering from TMI (too much information) due to social media which is constantly spreading information that we are compelled to 'share' without understanding the genuineness of it. We all must have heard fixed deposits do not give us adequate returns, so everyone wants to invest in mutual funds or shares or anything else than the poor old fixed deposit to not sound old fashioned. The problem with acting on TMI is if you have not researched well enough to handle your finances, you may end up with lesser returns than your good old fixed deposits anyways.


How to make bank fixed deposits work for you?


If you have idle money in your Savings account that you need after a short period probably less than 2 years, you may consider parking it in bank fixed deposits. It can be done easily with a phone call or online and is simple to understand. You will get a fixed rate of return for your investment after maturity or periodically as selected by you.

This has almost no risk and your money stays invested, without worrying at all. There are mutual funds that are low risk like Liquid funds or short-term debt funds that you may be inclined towards, however I personally do not see any need to complicate matters in the short term.


Investing in debt funds is a different ball game altogether and may be considered if you have a well-diversified portfolio. If you are doing it yourself, you may want to understand clearly how debt funds work and the kind of risks involved in them. It can work for you if you have weighed your risks before investing.


Taxation


Interest income from fixed deposit is taxable as per tax slabs. Banks deduct TDS on the interest income beyond a certain threshold ₹10,000 (₹ 40,000 proposed). After which you can claim it back while filing ITR, if your taxable income is lower than the taxable limit as per slab. To avoid this ITR filing for claiming it back, you can download and submit Form 15G or Form 15H. If you are below 60 years, you need to submit Form 15G or Form 15H for senior citizens and super senior citizens. These forms are valid for one financial year and the bank would not deduct TDS for that particular year.


If your fixed deposit is jointly opened, the first account holder is liable to pay tax deducted at source and hence interest is paid to the first account holder.


Loan against Fixed Deposit


You can get loan against fixed deposit by using it as a collateral without having to withdraw the investment.


Tax Saving Fixed Deposit


The principal amount gets tax exemption up to ₹1.5 lakhs however your investment is locked in for a period of five years. You cannot withdraw the amount before maturity.


Conclusion


Interest rates range from around 6.25% to 7% for a 1-year fixed deposit and it is not really a bad deal for short term goals. You need to identify the exact tenure and purpose of this investment to make it work. If you are undecided and your money is in fixed deposit simply because you have no idea what to do with it, is not going to help you.