FIXED DEPOSITS IN INDIA: IS IT STILL THE RIGHT CHOICE?

Fixed Deposits (FDs) have long served as a cornerstone of financial security in India, offering a reliable blend of safety, guaranteed returns, and accessibility for both resident Indians and Non-Resident Indians (NRIs).

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In an increasingly volatile global economy, FDs stand out as a stable investment option. However, with the Reserve Bank of India recently lowering the repo rate, FD interest rates may trend downward, prompting investors to reevaluate their investment patterns.

This article takes a closer look at why FDs remain popular in India, their sensitivity to monetary policy, their performance in a global context, and how investors can make the most of them while being aware of their limitations.

The Enduring Appeal of Fixed Deposits

FDs remain a popular investment choice in India because they are safe, simple, and reliable.

• Your money is protected up to ₹5 lakh per bank through insurance by the Deposit Insurance and Credit Guarantee Corporation (DICGC), ensuring protection even in the unlikely event of bank insolvency.

• YFDs offer fixed interest rates for the full term, ensuring steady, predictable income, without worrying about market volatility.

• Accessible to everyone, with investments starting as low as ₹1,000.

• No hidden charges, and the process is easy to understand.

• For NRIs, special options like NRE and NRO FDs offer flexibility, tax benefits, and ease of managing Indian income.

These attributes position FDs as a preferred option for cautious investors, those focussed on capital preservation, and individuals planning for short-term or retirement goals.

How RBI's Repo Rate Affects FD Rates

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks. It directly influences how much interest banks can offer on FDs:

When the repo rate goes up, banks pay more to borrow, so they often raise FD interest rates.

When the repo rate comes down, banks pay less to borrow and may reduce FD rates.