FDs aren’t always safe: Chasing 11% ‘secure’ fixed deposit cost a retiree Rs 60 lakh - here's what happened

Fixed deposits (FDs) have long been considered one of the safest investment options for Indian savers. By parking a lump sum for a fixed tenure — typically ranging from seven days to 10 years — investors receive predetermined interest rates and stable returns, often higher than savings accounts. Currently, many leading banks offer FD interest rates of around 8% per annum, with senior citizens receiving slightly higher returns.

However, financial experts warn that the perception of safety can sometimes be misleading, especially when investors chase unusually high interest rates.

Wealth and investment expert CA Nitin Kaushik recently highlighted a case that underscores the risks hidden behind seemingly attractive FD offers. One of his clients from Haryana lost nearly ₹60 lakh after placing his retirement corpus in a high-interest deposit scheme offered by a cooperative bank.

The client had received ₹85 lakh as part of a voluntary retirement scheme (VRS) payout. Looking for steady income after retirement, he invested most of the amount in a cooperative bank fixed deposit that offered around 11% annual interest, significantly higher than the rates offered by large commercial banks.

On paper, the investment appeared ideal. The deposit was expected to generate around ₹78,000 per month in interest, effectively creating a private pension for the retiree.

But the unusually high return carried hidden risks.

According to Kaushik, interest rates well above those offered by major banks often signal that the institution is lending to higher-risk borrowers. While large banks may lend at lower rates to creditworthy borrowers, smaller institutions offering higher deposit rates typically fund loans to riskier segments at 15–18% interest.

“In many cases, investors believe they are being conservative by choosing fixed deposits. But if the interest rate is unusually high, it may indicate that the underlying lending book is riskier,” Kaushik said.

In this case, the cooperative bank eventually collapsed. The Reserve Bank of India imposed withdrawal restrictions, limiting how much depositors could access from their accounts. Interest payments stopped, and depositors were unable to withdraw their funds freely.

The situation worsened when liquidation proceedings began. Unlike market crashes, where investors see volatility in real time, the losses in this case unfolded quietly — through frozen accounts and restricted access to funds.

The most painful reality for the investor came when he learned about deposit insurance limits. Under India’s Deposit Insurance and Credit Guarantee Corporation (DICGC) rules, bank deposits are insured only up to ₹5 lakh per depositor per bank.

Out of his ₹85 lakh investment, only ₹5 lakh was fully protected. The remaining amount depended on recovery during liquidation proceedings.

After years of waiting, the client managed to recover less than 30% of his capital, resulting in a permanent loss of around ₹60 lakh.

The case highlights a crucial lesson for investors: higher interest rates do not necessarily mean safer investments. True safety, experts say, lies in institutional strength, diversification and liquidity, rather than chasing the highest returns.

For investors, the message is simple. If a deposit rate looks significantly higher than what large, well-regulated banks are offering, it may not be a better deal — it may simply be a higher-risk investment disguised as safety.