How Do Fixed Deposit Interest Rates Stack Up Against Other Safe Investment Options?
A fixed deposit is an asset provided by banking and finance institutions that involves putting money at one time into an investment that returns a rate after the agreed period elapses.
- Dec 24, 2024,
- Updated Dec 24, 2024 3:08 PM IST
Now imagine you just got a bonus at work. You receive considerable money and decide to buy a fixed deposit instead of keeping money in your savings account. Why? Fiduciary investment options are among the safest that can be chosen. This is because their returns are fixed, i.e., interest rate plus return do not change with market volatilities.
Excluding the range of fixed deposits, numerous avenues for investment are perceived and known in India to accord safety. However, assurance of return, fixed rates of interest, and the freedom to choose the tenure option will make it one of the opted instruments of investments.
Fixed Deposits in India - An Overview
A fixed deposit is an asset provided by banking and finance institutions that involves putting money at one time into an investment that returns a rate after the agreed period elapses. This statement guarantees the rate you will accrue after the elapsed time, thus creating some surety. Generally, it provides more rate provisions in case of an interest period.
For instance, if you invest ₹100,000 in an FD for five years at an interest rate of 6%, you will earn an interest amount of ₹30,000 over the period, which sums up to ₹130,000 at maturity. Because of their simplicity, FDs are very popular among conservative investors seeking assured returns.
The interest rate on a fixed deposit generally ranges from 5% to 8% per annum, depending on the bank and deposit tenure.
Alternatives to Fixed Deposit
These four investing choices could substitute for Fixed Deposits in India.
Public Provident Fund (PPF)
With an annual return of 7.1%, PPF returns may be slightly better than some FDs. PPF rates are reviewed every quarter and are subject to change.
However, in contrast to FDs, PPF investments are not liquid and have a lock-in period of 15 years. Premature withdrawals are allowed from the 6th year, but only in specific scenarios.
Sovereign Gold Bond (SGB)
SGB offers an annual interest rate of only 2.50%, payable half-yearly. However, the key feature of this investment is that, besides earning interest, the bond returns are linked to the value of physical gold. When the value of gold increases, the overall returns on your investment do, too.
Like PPF, SGBs are not liquid investments. They have an eight-year lock-in period, with early withdrawal allowed after five years.
National Savings Certificate (NSC)
NSC is a government-backed fixed-income instrument you can invest in through the post office. The yield from NSC is better than that from FDs, at a 7.7% return. But the downside is the five-year lock-in period.
Debt Funds
Debt funds are mutual fund schemes whose portfolios consist of treasury bills, corporate bonds, government securities, and money market instruments. Unlike the latter, their returns aren't guaranteed.
Features that make Fixed Deposits in India a popular choice
- Guaranteed returns
- Flexible tenure
- More liquid
- Easy to open and manage
- Loan against FDs
- Tax-savings
Conclusion
Fixed deposits are among the most dependable forms of investment in India for individuals searching for security and predictable returns. But as you make your decision, consider not just the interest rate but also the tax benefits and aspects of liquidity. Better returns can be obtained by spreading capital across multiple investment options or different tenures for FDs.
Now imagine you just got a bonus at work. You receive considerable money and decide to buy a fixed deposit instead of keeping money in your savings account. Why? Fiduciary investment options are among the safest that can be chosen. This is because their returns are fixed, i.e., interest rate plus return do not change with market volatilities.
Excluding the range of fixed deposits, numerous avenues for investment are perceived and known in India to accord safety. However, assurance of return, fixed rates of interest, and the freedom to choose the tenure option will make it one of the opted instruments of investments.
Fixed Deposits in India - An Overview
A fixed deposit is an asset provided by banking and finance institutions that involves putting money at one time into an investment that returns a rate after the agreed period elapses. This statement guarantees the rate you will accrue after the elapsed time, thus creating some surety. Generally, it provides more rate provisions in case of an interest period.
For instance, if you invest ₹100,000 in an FD for five years at an interest rate of 6%, you will earn an interest amount of ₹30,000 over the period, which sums up to ₹130,000 at maturity. Because of their simplicity, FDs are very popular among conservative investors seeking assured returns.
The interest rate on a fixed deposit generally ranges from 5% to 8% per annum, depending on the bank and deposit tenure.
Alternatives to Fixed Deposit
These four investing choices could substitute for Fixed Deposits in India.
Public Provident Fund (PPF)
With an annual return of 7.1%, PPF returns may be slightly better than some FDs. PPF rates are reviewed every quarter and are subject to change.
However, in contrast to FDs, PPF investments are not liquid and have a lock-in period of 15 years. Premature withdrawals are allowed from the 6th year, but only in specific scenarios.
Sovereign Gold Bond (SGB)
SGB offers an annual interest rate of only 2.50%, payable half-yearly. However, the key feature of this investment is that, besides earning interest, the bond returns are linked to the value of physical gold. When the value of gold increases, the overall returns on your investment do, too.
Like PPF, SGBs are not liquid investments. They have an eight-year lock-in period, with early withdrawal allowed after five years.
National Savings Certificate (NSC)
NSC is a government-backed fixed-income instrument you can invest in through the post office. The yield from NSC is better than that from FDs, at a 7.7% return. But the downside is the five-year lock-in period.
Debt Funds
Debt funds are mutual fund schemes whose portfolios consist of treasury bills, corporate bonds, government securities, and money market instruments. Unlike the latter, their returns aren't guaranteed.
Features that make Fixed Deposits in India a popular choice
- Guaranteed returns
- Flexible tenure
- More liquid
- Easy to open and manage
- Loan against FDs
- Tax-savings
Conclusion
Fixed deposits are among the most dependable forms of investment in India for individuals searching for security and predictable returns. But as you make your decision, consider not just the interest rate but also the tax benefits and aspects of liquidity. Better returns can be obtained by spreading capital across multiple investment options or different tenures for FDs.