Fixed Deposits..aha..the great old grandfather of all investments

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The safest investment option ever( not without risk)

 

If you are wondering why it's the safest option, I can say to your face that it involves no human interaction. Yes..human emotion and behavior are the biggest risk factors in terms of earning money.

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For Fixed Deposits, the defaultability of the institution is the biggest risk 

 

For a quicker version, skip to the Summary section at the end of the page

Fixed Deposits(FD) are investment options usually provided by banks and NBFCs(Non-Banking Financial Corporations). They take money from you for a particular duration of period and give you back your money with a set amount of interest. It is as simple. There is nothing much you need to do after giving them your money except to monitor the financial health of the bank/NBFC and liquidate your investment if you feel the institution is going to default as it happened in the case of DHFL and Yes Bank.

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As they are the safest investments, they give you the lowest returns. Yes, returns are inversely proportional to risk.

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Depending on the amount you wish to make a Fixed Deposit with, the interest rates change.

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Let me make you understand a bit better..Which is riskier, a Rs.1,00,000/- investment or Rs. 10,00,000/- investment?

Rs. 10,00,000/- obviously. So you get more interest in a 10 Lakh investment compared to 1 Lakh investment depending on the slabs.

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A typical Fixed Deposit interest rate lies within the range of 4% - 8.5% per year. This knowledge also helps you understand the health of any investment plan.

If you are planning to invest in a business that gives you a profit of less than ~6% per year, then consider that as a bad investment as putting the same money in FD is going to give you better returns.

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The FD interest rates can be known by going to the website of that particular bank or calling the bank as the rates are subject to change in a very short notice.

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Bank Bazar has a very good collection of FD rates for each bank.

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Summary

Fixed Deposit: Investment option provided by banks/NBFCs. The only associated risk is bank default

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Advantages

• Safest investment option available

• Liquidity: FD can be liquidated at any time by paying a small penalty

• Easy to compound

• Can be used as a metric to check how good an investment is

• For a large amount of money, FD is a very good option

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Disadvantages

• Low returns

• Inflation can eat away your returns

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