Does fixed deposit give you the best returns?
Usually, no! FDs are the best only if you fall in the lowest tax bracket or are a retiree.
While bank fixed deposits are undoubtedly safe, their returns are poor. In fact, over a long period of time, they tend to return lower than inflation – so your purchasing power actually reduces if your money is stored in fixed deposits over long periods of time. Fixed deposits are useful only if you need the money within the next three years.
Over the long term, there is no alternative to equity if you want to stay ahead of inflation. You can either directly invest in stocks, or, if you lack the time & expertise, take the mutual fund route.
Fixed deposits give assured returns. So, traditional investors have parked their savings in FDs. However, three things which need to be considered:
- Fixed deposit returns are lower than inflation. Your money loses value over time.
- Breaking fixed deposit or premature withdrawals always comes with a cost. It will be an inconvenience when money is required during an emergency.
At present, interest rates on fixed deposits are between 6% to 8%,depending on the time period of investment.Retirees, persons in the lower tax bracket or those needing money within 3 years can opt for fixed deposits.