How Fixed Deposit Interest Rates Compare to Other Safe Investment Options?

You have recently received a bonus at work, and instead of leaving it idle in your savings account, you chose to invest your funds in a Fixed Deposit. These investment instruments are one of the safest options and their returns (interest rate) do not fluctuate based on market news. 

Apart from Fixed Deposits, there are various other investment avenues in India that offer safety. However, FDs remain a popular choice due to their guaranteed returns, fixed interest rates, and flexibility in choosing the tenure.

What are Fixed Deposits in India?

A Fixed Deposit is a financial instrument offered by banks and financial institutions. It allows you to deposit a lump sum for a fixed period at a specified interest rate. This means that you know exactly how much interest you will earn, providing a sense of security. Generally, the longer you invest your money, the higher the interest rate you can receive.

For example, if you place ₹100,000 in an FD for five years at an interest rate of 6%, you will earn ₹30,000 in interest over that period, resulting in a total of ₹130,000 at maturity. The simplicity of FDs makes them a popular choice among conservative investors looking for guaranteed returns.

FD interest rates typically range between 5% to 8% per annum, depending on the bank and the deposit tenure.

Alternatives to Fixed Deposit in India

Here are four investment options that can be an alternative to FD. 

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 investment is not liquid and comes with 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. As the value of gold rises, so do the overall returns on your investment.

Like PPF, SGBs are also not a liquid investment. They have a lock-in period of eight years, with premature withdrawal available after the completion of five years.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a government-backed fixed-income instrument where you can invest through the post office. 

With a return of 7.7%, NSC yields are better than Fixed Deposits (FDs). However, the downside is the five-year locking period.

Debt Funds

Debt funds are mutual fund schemes where the portfolio comprises treasury bills, corporate bonds, government securities, and money market instruments. Unlike FDs, their returns are not guaranteed.

Features that make Fixed Deposit in India a popular choice

• Guaranteed returns
• Flexible tenure
• More liquid
• Easy to open and manage
• Loan against FDs
• Tax-savings

Conclusion

Fixed Deposits in India are a reliable investment option for individuals seeking security and predictable returns. However, as you evaluate your choices, it’s essential to consider not only the interest rate but also the tax benefits and liquidity aspects. To achieve better returns, consider spreading your capital across multiple investment options or different FD tenures.