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Does fixed deposit give you the best returns?

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.

Fixed Deposit : Choose the Best Option

Fixed Deposit schemes are offered by various institutions. It is very important for you to choose the best. Read on to know how.

Which fixed deposit should you go for?

In fixed deposits, safety is paramount – not half or 0.75 percent of extra interest.

The slightly higher rate of interest doesn’t really matter in the larger scheme of things, while an unsafe FD can give you sleepless nights later.Convenience and good service would be the second factor to look for.

We therefore advise going for a nationalized bank or one of the larger private banks – ICICI, HDFC, Axis or Kotak. Slightly less safe are deposits in cooperative banks.

Corporate fixed deposits can be quite unsafe– it really depends on the company you are investing in. Many companies tend to advertise their deposits and lure you with higher interest rates, so beware!

What term should you choose?

Fixed deposits longer than three years are not useful. The returns they give are poor, and often lower than inflation. For long term investments, you would rather go for equities, which can give better and inflation beating returns over the long term. On the debt side, PPF and public sector bonds (like NABARD or Indian Railways) are better for long term investments.

Below three years, the tenure you should go for really depends on when you think you need the money. Since there is a penalty for premature withdrawal, you might as well choose the tenure so that you are unlikely to break the deposit midway.

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Family Budget : It Is More Important Than You Think

Creating a  family budget is very crucial and doing it right is even more.

We need to have a family budget. How many of us will like to travel in a train without knowing where it’s heading?  Not having a family budget is like riding your financial life without a destination. Many of us have a hard time finding enough surplus funds. Most of the time is spent balancing income and expenses.

Preparing a budget is fairly a simple activity and may be done once or twice a year. A budget is nothing but a statement of your expected income and anticipated expenses.  Most of us will have a good idea of the income we may have during the year and similarly we know where the money is going under heads like food, housing, utilities, transportation, clothing, insurance, EMIs, entertainment and so on. This statement shows at the end of the year how you are placed financially; what kind of surplus or shortfall you may have at the end of the year. This will then give you a good status on your financial state and how well or bad you are faring.

The personal budget helps in plan our income and expenses better and create scope for that little something that we can save or invest. All you need to do is to record them on a regular basis. This will not only help you monitor your expenses but will also help you in identifying your wasteful expenditure creating the much needed surplus for investing.
Discipline yourself to live within your budget plan.

If you do not prepare a personal budget, you would not be in a position to meet your long term financial goals. Even if your incomes rise in future, it is likely that your expenses will outpace your income. This way you will always be on your toes to manage your income and expenses. That surplus money for investment will always remain an illusion.
If you are struggling to meet your expenses from your sources of income, the objective of your budget is to find ways to generate enough surpluses for investment. For this try to fix a cap for each type of expenditure that you incur. Cut down your incidental expenditure and find ways to minimize others. This will be a difficult task at the beginning but your efforts will start giving fruits by generating a surplus out of the fixed corpus. Set yourself a target to save 10-15 per cent of your monthly income every month.

If you already have surplus income after meeting your monthly and annual financial commitments, you may still want to minimize your unnecessary expenditure and start generating a larger surplus.Your target now should be increasing your monthly saving potential to 20-35 per cent of your monthly income. Here is when you can start allocating your surplus funds to work for your long term goals.

Click here to not just plan, but also to achieve all your financial goals.