Are Fixed Deposits (FDs) Still Your Best Bet?
Fixed Deposits (FDs) have been a trusted choice for Indian savers for decades, offering a safe harbour for hard-earned money. They’re reliable, predictable, and for many, they symbolise financial security, especially when offered by Public Sector banks.
The Deep Rooted Trust
In India, FDs have a special place in people’s hearts. For generations, they’ve been a trusted haven for savings, particularly for retirement planning and major life goals. The perception of safety associated with FDs, especially those from government-backed banks, provides a sense of comfort for many investors.
The Downsides
1. Taxation: Interest earned on FDs is taxable, which can eat up to 30% of your returns. For investors in 30% tax bracket, the FD returns on date are less than 5%.
2. Inability to beat inflation: FD interest rate has always been lower than lifestyle inflation, hence, your purchasing power decreases over time.
3. Default Risk: While rare, there’s always a risk of bank or NBFC default. We have all seen this risk playing out in YES Bank and PMC Bank.
4. Limited Liquidity and Flexibility: FDs have lock-in periods, making it hard to access your money when needed. Thus, limiting your flexibility to meet emergencies and changing financial needs.
5. Reinvestment Dilemma: When your FD matures, you face the choice of reinvesting at possibly lower rates or withdrawing funds.
6. Coverage Limit: Bank FDs are not fully safe. In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures bank deposits only up to ₹5,00,000 per depositor per bank.
Key Takeaways
While FDs may seem to provide a level of security, they are not always the optimal investment choice. Here are some key points to consider:
-
Investment Horizon: Always match your investments with your financial goals. Bank savings or deposits may be suitable for short-term needs, for long term goals mutual funds and market instruments should be the way.
-
Risk Tolerance: Consider your risk appetite. If you’re comfortable with some risk, explore investment options like Equity/ mutual funds with potentially higher returns.
-
Diversification: Never put all your eggs in one basket. Diversify your portfolio across asset classes to mitigate risk.
In Conclusion
While FDs provide a false sense of safety net, they are not your best bet for long-term wealth creation. A balanced approach that matches to your goals, risk tolerance, and market conditions is crucial. Explore alternative avenues like equity, mutual funds, gold or real estate through REITs (Real Estate Investment Trusts) to diversify and grow your wealth over time.
“No one has ever become rich by Investing in FDs ~(Col Sandeep Mahalwar, CEO Finvision Financial Services)
Ready to Explore Alternatives?
Schedule a consultation with our financial experts today. We’ll help tailor an investment plan that fits your unique needs and goals, ensuring your money works harder for you.
📞 +91 9654521212
