You may wonder that your fixed deposit is fetching negative return to your income or eating your money. This looks impossible at one stage but this is true in context of last five years as fixed deposits are giving negative return thanks to inflation.
Further, income tax law on TDS on interest makes it worse as the depositors are taxed on interest income which is nominal.
However, TDS rule on interest is always on and banks always want to cut your money but the rules are tight now as we used to create FDRs in installments which are not over 50000 to save TDS deduction and divided the amount in some branches or even in some banks.
Threshold limit on TDS on interest income is 10000. If the interest income is 10000 or over in a financial year, bank will deduct TDS if the depositor does not submit form 15G or 15H timely.
Study tells that investors are getting negative return on fixed deposits for the last five years.
The lowest real return was -5 .4% in 2009-10 when consumer price index for industrial workers CPI-IW rose by 12.4% and the weighted average deposit rate on term deposits was 6.97%. The weighted average return takes into account the average cost of deposits for banks after factoring in the extent in each maturity basket. Although bankers offer the highest return on deposits of 3-years and above, bulk of bank deposits are around the one-year category.
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