FD is much safer than the market, but even in FD the money is not 100% safe. There are also some risk factors and drawback on FD, which people are not aware of.
Bank FD is considered a traditional means of investment. Even today, as much people believe in the reliable fixed deposit scheme, they do not believe in anyone. FD is free from market risk and in this you get a fixed return. It is true that FD is very safe as compared to the market, but even in FD money is not 100% safe. There are some risk factors and drawback on FD too, about which many people do not know. Let us tell you.
Only deposits up to 5 lakhs are safe.
If you think that your money on FD is completely safe, then it is not so. If the bank defaults in any condition, then only the deposit of up to 5 lakhs of the investors remains safe. The reason for this is that Deposit Insurance and Credit Guarantee Corporation (DICGC) gives insurance guarantee on bank deposits only up to Rs 5,00,000. That is, in the event of bank bankruptcy or sinking of the bank, the account holder will get only up to 5 lakhs, even if the account holder has 10 lakh rupees deposited in the bank.
Liquidity problem
There is an issue of liquidity in bank FD. If you break the FD prematurely, then pre-mature penalty has to be paid on it. What will be the penalty amount on FD, it may differ in banks. If you have invested in any tax saving FD, then you can withdraw it even before the period of 5 years. But in this situation you do not get tax exemption.
Fear of loss in reinvestment
The interest on FD keeps on increasing and decreasing, so if you have chosen the option of reinvestment, then your amount will automatically be reinvested again after the completion of tenure. But in such a situation, if the interest rates are reduced further, then you will also get reduced interest on the amount, that is, your return will be less than before.
Risk of ban in this situation
RBI keeps an eye on every activity of all the banks. If there is a disturbance in the financials of any bank, then the Reserve Bank can ban it. In such a situation, there is a danger of depositors’ money being held. In this situation, the investor may have to wait to get the money back and may also have to bear the loss.
