5 Common Myths about Term Deposits

A Term deposit is an investment for a fixed period in banks or non-banking financial companies. Investment in a term deposit is a boon to people confined to regular saving habits. Due to its wide choice of deposit accounts, each designed to serve different types of investors as per their terms and convenience. Now, this has enabled frequent saving habits among the people. Term deposits are designed to allocate safe returns in the hands of the depositor to serve the purpose effectively.

Term Deposits

The improper and wrong flow of information regarding any tool leads to obsolescence in its use. Many times term deposits go through inappropriate pieces of information in respect of the features and functions. Owing to the absence of knowledge in the fields of deposits, certain myths are likely to arise. Unless one is not aware of the correct information of the term deposit, he will not be able to derive its uses. The myths regarding the term deposit involve inaccuracy in the various aspects of the deposit covering the following parts:

  • Taxation
  • Maturity amount
  • Deposit tenure
  • Tax deduction at source
  • Interest payments.

Common tales about the term deposit

Term deposits involve distinct myths and tales which are untrue to the best of our knowledge. Here we will discuss the various well-known myths affecting the facts of the term deposit. The five myths which are still doing the round are as follows:

Term deposits are only offered by banks: One of the most widespread myths about the term deposits is regarding its availability. It is far most believed that one can open his deposit account only through banks. Putting the light on the statement, it is so far wrong to conclude that its just a bank that offers the facility of term deposit. You can open your term deposit accounts from other non-banking financial sectors too. There is a wide choice for investors to choose the best bank or financial institution offering you the best of terms in a term deposit.

Tax exemption on interest earned on term deposit: There is a severe misinterpretation regarding the terms of tax liability on term deposits. It is believed that there are no inclusions of the interest earned on deposit on your annual tax returns. In reality, the interest earned through the term deposit must be included in your annual tax return. False assumptions with respect to tax liability may showcase an untrue and false income history.

Term deposits are better than the stock market in terms of returns: Yet another misbelief pertains on the grounds of choice between a term deposit and stock market investment and the rate of returns they yield to the depositors. It is assumed that the term deposit yields higher returns as compared to the stock market, owing to the non-interference of the market conditions. In contrary stock market provides a higher return than that of a term deposit with respect to its ability to beat inflations. Investment in the stock market vulnerably enjoys a significant rise in the invested amount due to market inflation.

Withdrawing a part of deposit would be considered as premature withdrawal: It is wrong to consider the amount of withdrawal as a penalty for premature withdrawing. The depositor is provided with the authority to withdraw a part of his deposited amount as per his needs, and that would not incur him with any withdrawal penalty. Withdrawing the whole amount and drawing just a part of your savings are completely different, and so does the terms associated with them. There is no foundation on the depositor in withdrawing a part of his savings in case of an emergency.

The compulsion of tax payment: The myth regarding the tax payment on the deposit is an entirely incomplete piece of information. There is a need for tax payment only in the case where the deposit amount exceeds a specific value of 10,000. In that case, the depositor shall be liable to pay tax on his earnings more than the specified amount. Otherwise, the depositor need not pay the tax on the amount earned through interest. Thus the investor can enjoy the tax-free earnings through the term deposit.

Thus, untrue and false assumptions may lead to unnecessary doubts in the mind of the depositor, therefore refraining him from opting such a plan which may otherwise be beneficial in many ways while others believe that term deposit is an investment for the rich. In contrary to these myths, it is effortless to save your money in the term deposit as it does not involve huge investment to start with. You don’t have to gain proper knowledge of the market to start your investment. People of any age group can invest in the term deposit and earn better returns. Besides the term deposit provides a great privilege to the senior citizens on their investment by delivering relatability higher rate of interest and other facilities.

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