Is Fixed deposit worth your money?

Savings is something we are encouraged from an early age, and we use a wide range of strategies and methods to achieve it. Some people put their money into mutual fund schemes, while others put their money into precious metals or real estate.

Some people choose to save money in an old-fashioned manner in various savings bank accounts. This approach of saving money might have sufficed a few decades ago, but it is no longer sufficient to provide a decent retirement or meet other financial objectives.

What is a Fixed deposit?

A fixed deposit (FD), often known as a term deposit or time deposit, is a financial product available from all banks in the country. It is one of the safest investment alternatives since it guarantees a set return on the money invested. When a person makes an investment in a fixed deposit, his or her money is locked in for a certain length of time and generates interest until it matures.

When it comes to selecting a fixed deposit duration, people who want to invest money should be cautious because the term determines the rate of interest on a fixed deposit. The interest rate is also determined by bank policies and can vary from 4% to 8.5%.

While a fixed deposit is notorious for having limited liquidity, its high rate of interest compensates for this. Furthermore, there are several advantages to investing in a fixed deposit. Continue reading to learn about the advantages of investing in a fixed deposit.

Taxes on fixed deposit

In India, fixed deposits are taxed. The government has announced that annual Fixed Deposit interest gains of more than INR 40,000 are taxed. The interest you earn on your Fixed Deposit Scheme is considered income and is taxed depending on your overall earned income. This rule is applicable to any interest earned on a fixed deposit that exceeds INR 40,000 per year.

The Advantages of a Fixed Deposit

A fixed deposit is one of the oldest types of investment, and it provides a variety of advantages to investors. The following are a few of these advantages:

  • Returns are guaranteed:
  • Fixed deposit investments provide a guaranteed return. The rates of return are usually higher than those given by a savings account. On the other hand, returns fluctuate depending on the length of time invested. Banks are currently giving yields ranging from 4% to 8.5%, depending on the term. Make absolutely sure you don’t break the FD in the middle because early withdrawals may have an impact on your returns.

  • Allow for flexibility:
  • FDs provide you with the option of setting your money for a set amount of time. Yes, fixed deposits are available in a variety of tenure lengths ranging from 18 days to 10 years. However, each bank has its own tenure conditions, but regardless of whether you have a bank account or not, you may open an FD with any of the banks. Other than falling into the trap of early withdrawals, choose what fits you most.

  • An instrument for risk management:
  • Some products, such as mutual funds, gold ETFs, ULIPs, and others, can provide more significant returns but are riskier. As a result, debt instruments must be purchased in order to mitigate market risk. FDs are the most incredible option for controlling that type of risk when it comes to long-term financial goals.

    Disadvantages of a Fixed Deposit

    • The Impact of Inflation Rates on Fixed Deposit Plans
    • Inflation depreciates the purchasing power of your money over time. Consider how many tomatoes you could purchase for INR 500 five years ago against how many tomatoes you can buy now for the same money. The number of tomatoes available for INR 500 now is substantially less. This is due to inflation’s degrading influence on your purchasing power.

      If the inflation rate is 6% and your Fixed Deposit offers you a rate of say 5% after-tax, your investment will lose 1% of its value due to inflation. This is an essential consideration when investing in Fixed Deposits since the interest rate on your Fixed Deposit is fixed for the duration of your investment. In contrast, the rate of inflation is unpredictable.

    • High taxes:
    • Fixed Deposits are subject to a high tax rate since they do not provide any particular tax benefits. If you’re in the 30% tax bracket, you’ll have to pay tax on the interest you earn in a year according to your tax rate.

      If you open a Rs 10 lacs FD and earn Rs 80,000 in interest (at 8%), you will pay Rs 24,000 in tax if you are in the highest tax band.


    People deposit money into bank accounts in a way to collect interest. A savings account and a fixed deposit both pay interest, but your money grows faster when you lock it in for a certain period of time.

    While a savings account has no restriction on the amount you may deposit, no set term, and greater interest rates for senior people, a fixed deposit has a higher rate of interest, compounding interest, and loan and tax benefits for everyone (including elderly people).

    As a result, if you ever had to choose between investing in a fixed deposit and keeping your money in a savings account, the above comparisons show that investing in a fixed deposit makes solid financial sense.
    There are companies like bajaj finance, mahindra, icici home finance which offer corporate fd’s.
    Menton them and compare their returns from bank fd’s

    CA Mukesh Gupta
    CA Mukesh Gupta
    Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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