5 mistakes to avoid before investing in savings certificates

Savings certificates still remain a popular medium among the middle-class and limited-income people of Bangladesh when the matter of safe investment comes up. Many choose this sector for long-term savings to meet the needs of future education, treatment, family expenses or regular income. However if investment is made in savings certificates without knowing the rules or without matching with one’s own financial condition there is a possibility of being deprived of the expected benefits as well as loss.

Especially before investment clear idea about the tenure, method of getting profit, tax and fixed limit is necessary. At the same time when the need of money may arise has to be taken into consideration. The five mistakes that should generally be avoided while buying savings certificates are:

Keeping emergency money locked in long-term investment

It is not right to invest money that may be needed for sudden treatment expenses, emergency needs of the family or within a short time in savings certificates. Because many savings certificates are bought for a specific tenure and if broken before the completion of the tenure the expected profit may not be obtained according to the fixed rules. Therefore it is necessary to keep separate cash or easily withdrawable money for use in emergency needs.

Not verifying the investment limit and current rules

It is urgent to know in advance how much money can be used to buy savings certificates, what rules are applicable in which type of investment and whether there is any difference in profit or other conditions according to the amount of investment. Even if investment is made in the name of another member of the family the actual ownership of the money, source and tax-related provisions have to be kept in consideration. Investing in the name of another only for the purpose of taking the benefit of tax can be risky.

Ignoring the matter of tax and source deduction

Tax is deducted at source according to the fixed rules on the profit received from savings certificates. The investor’s TIN, income tax return and other tax-related matters are also important here. As a result before investment the applicable tax rate and provisions should be known by matching with one’s own tax situation. Advice of the concerned authority or tax expert can be taken if needed in this regard.

Selecting the scheme by looking only at the profit rate

The method of getting profit is not the same in all schemes of savings certificates. Someone may need regular income, again someone may want to get one-time money after the end of a specific tenure. Therefore the scheme should be selected according to one’s monthly expenses, need of cash money and the goal of investment without looking only at which scheme has higher profit rate. For example, there is opportunity of getting regular profit in family savings certificate, on the other hand there is arrangement of giving profit after specific intervals in some schemes.

Keeping the entire savings in one sector

Keeping the entire money of savings in savings certificates is not a good financial plan in all situations. If the savings are divided according to short-term, medium-term and long-term needs along with easily usable money for emergency expenses the risk decreases. Due to this the need of breaking the long-term investment early if sudden need of money arises also decreases.

Before taking the decision of keeping money in savings certificates it is urgent to verify the current profit rate of the concerned scheme, tenure, investment limit, tax rules and the conditions of breaking before the completion of the tenure. Alongside when and how much money may be needed in the future also has to be calculated. Investing by maintaining consistency with one’s own financial goal and cash flow along with safe investment can be a more effective decision.