Fixed deposits have for long been one of the most popular and sought-after savings instrument for the salaried class. While it is important to assess the factors such as the interest rate being offered and the duration of the lock-in period, it is equally important to consider other aspects associated with it. Some of these include the penalties incurred in case of premature withdrawals of fixed deposits which can hamper the returns which you may have anticipated in the first place.
Thus, just like with any other financial product, in case of fixed deposits too, you need to make an informed decision before opting for it. Here are thus three key aspects which you need to bear in mind before considering fixed deposits as an investment option -
Premature Closure
Premature closure refers to an individual breaking the fixed deposit before it has reached it stipulated period of completion. In such a case financial institution levy a penalty which varies from one lender to the other. Additionally, the interest is calculated at the time of breaking of the fixed deposit and for the duration completed by you. This further depreciates the interest accrued. It is thus essential to plan your finances before opting for fixed deposit.
Loan Facilities
During times of emergency, in a state of desperation, people tend to break their fixed deposits. What they do not know is that they can opt for a loan facility against their fixed deposit. There are no processing charges on such a loan, there are no prepayment charges, and your fixed deposit continues to earn interest.
Taxation
The interest accrued from fixed deposits is subject to taxation. It is thus imperative to classify fixed deposits under the ‘Income from Other Sources’ tab when filing returns. If the interest accrued is less than Rs. 10000, then you do not need to mention it. Senior citizens are exempted up to Rs. 50000.

There are a number of financial institutions who offer loan against fixed deposits. To know more details visit the websites of these lenders to make an informed decision.