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How Safe Are Your Fixed Deposits? Research Team | Posted On Monday, August 27,2018, 03:20 PM

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How Safe Are Your Fixed Deposits?




Fixed Deposits are very safe. The Principal is protected and you enjoy interest. Interest on FDs are around 6.5-7%. Senior citizens enjoy a higher interest on FDs.

The good news is fixed deposit interest rates are rising. RBI has gone for back to back repo rate hikes in its last two policy review meets for the first time since 2013. Repo has been hiked from 6% to 6.5%. As banks hike MCLR, loan rates have increased. While this is bad news for borrowers, it’s good news if you plan to invest in FDs.

HDFC Bank and SBI have increased fixed deposit interest rates. Take a look at SBI fixed deposit interest rates. Fixed deposit interest rates on accounts maturing between 2-3 years had been hiked from 6.65% to 6.75%. Those maturing between 3-5 years have been hiked from 6.7% to 6.8%.

Now to the big question. Are FDs safe? What’s the risk in fixed deposits? Let’s find out. Want to know more on FDs? We at will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.


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How Safe Are Your Fixed Deposits?

What is a fixed deposit? You can invest in a fixed deposit of a predetermined tenure, at a bank. You earn interest on the deposit called fixed deposit interest rate. FDs are a very popular and safe investment, excellent for first time investors.

If investments in FDs are safe, why discuss? Yes, fixed deposits in public sector banks and private sector banks are very safe. Currently, each depositor is protected up to Rs 1 Lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The problem is, high fixed deposit interest rates promised by small banks.


1. Things to consider before investing in fixed deposits?


  • Fixed deposit interest rates must beat inflation: Bank fixed deposits offer interest of around 6.5-7% a year. Retail inflation was around 5% in June, compared to 4.87% in May. Fixed deposit interest rates must beat inflation for you to achieve long-term financial goals.
  • Tax on fixed deposits: Interest earned on FDs is taxed depending on the tax bracket. If you fall in the higher tax bracket (30% tax bracket), interest is heavily taxed. Consider taxation before investing in FDs.


2. Risk of fixed deposits


Small banks are offering high fixed deposit interest rates. Take a look at IDFC Bank fixed deposit interest rates. IDFC Bank FD rates for tenor 181 days to 365 days is 7%. Its 7.5% for senior citizens. IDFC Bank FD rates for tenor 367 days to 731 days is 7.25%. Its 7.75% for senior citizens.

Equitas small finance bank offers fixed deposit interest rate of 6.75% on tenor of 181-210 days and for 1 year to 18 months its 8%. Jana small finance bank offers fixed deposit interest rate of 8.25-8.5% on 1-3 year FDs. So, why are small finance banks offering high fixed deposit interest rates? Is there risk in fixed deposits?

Simple….Small finance banks need money for business and are collecting it by offering high fixed deposit interest rates…..Fixed deposits in small banks and small finance banks are safe as they are regulated by the RBI. Small finance banks have to follow rules set by RBI vis-à-vis lending and other parameters. You also enjoy protection by the Deposit Insurance Credit Guarantee Corporation (DICGC) up to Rs 1 Lakh on this fixed deposit.


SEE ALSO: Personal Loan v/s Business Loan: Which Is Better?


3. What is Deposit Insurance and Credit Guarantee Corporation?


Protecting deposits at banks is very important. This makes deposit insurance very important. Deposit insurance basically means protecting your money in bank deposits, if a bank fails you get the money back.

Deposit insurance was started by Deposit Insurance and Credit Guarantee Corporation (DICGC) in 1961 and is fully owned by RBI. DICGC covers all commercial banks including branches of foreign banks functioning in India, local area banks (LAB) and regional rural banks (RRBs). Deposit Insurance and Credit Guarantee Corporation insures all savings bank deposits, fixed deposits, current account deposits and recurring deposits up to Rs 1 Lakh for both Principal and Interest.


4. Are Public Sector Banks safer than Private Sector Banks?


Private Sector Banks are as safe as Public Sector Banks. It’s extremely safe to invest in fixed deposits of ICICI Bank, HDFC Bank, Axis Bank, Yes Bank, IndusInd Bank and Kotak Mahindra Bank among others as they follow RBI rules and guidelines.

Private Sector banks have lower NPAs compared to PSBs. They also have excellent systems to monitor frauds. So, private sector banks are as safe as public sector banks.


SEE ALSO: Can You Get A Health Insurance Plan For Cancer Patients?


5. Calculate FD Returns


Use this formula to calculate FD Returns.

Compound Interest (CI) = P (1+i/100) ^ N - 1

P = Principal

N = Number of years

i = rate of interest.

Fixed deposit interest rates vary across banks. Interest is compounded quarterly, half-yearly or yearly. You can locate banks to invest in FDs using Bank Locator.

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