Fixed Deposits (FDs): Fixed return NOT guaranteed returns
Fixed Deposits (FDs) are popular because they’re simple and safe, offering a fixed interest return for a set time. However, FDs may not be the best choice for growing your money:
- Fixed Returns, Not Guaranteed
Many people are under the false belief think that FD returns are guaranteed. But FDs promise a fixed interest rate, they don’t guarantee the safety of your money. The government’s insurance scheme (DICGC) only covers up to ₹5 lakh per person, per bank. This means that if your bank is in trouble, you will get a maximum ₹5 lakh per bank and the remaining balance of actual FD/ SB might be stuck for years or irrecoverable.
In recent times, banks have run into trouble without much warning. For example, Yes Bank faced serious financial issues in 2020, and PMC Bank had to stop withdrawals in 2019 due to mismanagement. These examples show that even big, trusted banks can fail without warning.
- Inflation Reduces Your Returns
While it might seem like the solution to such a problem is to limit the amount deposited with one bank to Rs. 5 lakhs, FDs still give you lower returns than inflation. For instance, if inflation is 6% and your FD is earning only 6-7%, your post-tax returns are barely enough to cover the rising cost of living, leaving you with little or no real growth. It can even be said that you are better off spending the money today than putting it in an FD. - Low Returns Over Time
Even long-term FDs usually give low returns compared to other investments like stocks or mutual funds. In the long run, these low returns will not help you grow your wealth enough to keep up with rising costs.
While FDs are safe for short-term savings, they’re not the best option if you’re looking to grow your money or protect it from inflation. Consider other investment options like mutual funds, which offer better growth potential and higher returns over time.
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