Banks currently offer high interest rates on fixed deposits, enticing more people to invest in them. However, it’s important to know that fixed deposits come with some disadvantages. While they offer good returns with no risk, the returns are taxable, and the post-tax returns are much lower than advertised. Additionally, there are better options than fixed deposits for long term wealth creation.
It’s worth noting that fixed deposits are covered by deposit insurance credit guarantee schemes up to Rs. 5 lakhs, but post office schemes like PPF, NPS, and KVP offer guaranteed returns and tax benefits. Moreover, fixed deposits are unsuitable for tax savings under Section 80C of the Income Tax Act. Instead, 100% tax free schemes like PPF, VPF, and NPS are better options.
In conclusion, while fixed deposits offer high interest rates, they come with risks and drawbacks that could lead to loss instead of profit. It’s essential to weigh the pros and cons and consider other investment avenues, like mutual funds, for long-term wealth creation and tax-free returns.
