Why is the current economic scenario a good time to have fixed deposits?


The current economic situation is better termed as ‘uncertain’ rather than blatantly labeled as a ‘recession’. Investors in India who have their money invested in Equity and Mutual Funds are probably tearing their hair apart because there have been losses witnessed in all sectors. Here are some top reasons why you should have fixed deposits to see you through rough times, especially the current market scenario in India.

fixed deposit


Beat the recession – Fixed deposits have a fixed rate of interest

Yes, we know that the rate of interest on fixed deposits vary from time to time when the Reserve Bank of India changes the rates. But effectively, you are locked in for a rate that is applicable to your fixed deposit in India with the prevailing rate.

For example, if you decide to lock in Rs. 100,000 for a period of 3 years with SBI right now, you can access rates like 9.25%. So for the next 3 years, whether the Sensex stumbles down to 10,000 or 8,000, your fixed deposit investment in India will keep earning you 9.25% regardless of the market scenario.

Fixed deposits are great in the current economic situation in India – the RBI rate rise

Did you know that RBI recently made its 11th rate rise in the last 18 months? So, what does this mean for you as an investor?

In simple words, you will have access to better rates on bank deposits and fixed deposits in India. In an economic situation like this where every basis point matter, a 1 or 2% increase in rates of fixed deposits in India is a welcome sight to any investor’s portfolio, isn’t it?

Fixed deposits help you avert a cash crisis

While many of us are still trying to find ways to beat the cash crisis in the current economic situation in India, intelligent investors have already benefited by taking out personal loans against their fixed deposits in India.

If you didn’t know, banks generally offer loans against fixed deposits to its customers who have a lending rate of about 200 basis points, or 2% higher than their rate of interest earned on the fixed deposit. It beats paying 16-18% on a personal loan to manage a cash crisis, doesn’t it?

Fixed deposits help you lock your money away

Okay, here’s getting a bit deeper into an investor’s psyche. We all like to go on a spending spree especially when it comes to buying stocks when the stock market is down. But do we really know when the stock markets have bottomed out?

The current economic situation in India is plagued not only by political instability but also the pressure of a global slowdown. Many investors emptied their pockets to buy into stocks when the market breached levels of 17,000. What happened next? The markets tumbled further.

Here is where fixed deposits come into the picture. Fixed deposits in India offer investors a chance to simply ‘lock-away’ a part of their investment. This may be only a psychological safeguard against falling markets and a bleak economic situation, but you can thank us later for stopping you from blowing away more money on falling stocks.

We’ve talked about the benefits of fixed deposits in India especially in the current economic scenario. Check out some of the products and rates on offer for fixed deposits in India from some of the leading banks in the country.

Happy saving!

  1. Stock Tips Intraday says

    Fix deposit is a very safe and secure investment and market is very volatile that is why some people want to shift toward fix deposits. After the interest rate hike for NSC and PPF by government , these options are attracting a huge mass . But these investments are very long termed , slow and steady. Although the market is volatile , but a close watch can give handsome profits also.

  2. Stock Tips Intraday says

    Fix deposit has always been a good option for investors but it depends on your aptitude toward money making. Although Fix deposit definitely reduce liquidity in market and help in checking inflation but if someone has eagle eye watch on market , then one can definitely go for stocks and shares.

  3. Vijay says

    While investing we have to keep certain things in mind:
    – Risk Appetite
    – Time Horizon
    – Inflation Rates( Time value of money)
    Based on all these factors you should decide what is a good investment for you.

  4. NPR says

    Typos there. Sorry about that.

    No other, REPEAT, no other instrument has given this kind of return over long term.

  5. NPR says

    Completely agree with Altaf!

    Anybody less than 45 years of age, should, I repeat, should put atleast 50% of their total savings in Equity. And chose Mutual Funds (not Insurance plans) for investing in equity. I am writing some of the below sentence in CAPS – purposefully. EQUITY has been the MOST REWARDING instrument for ALL LONG TERM investors. Just do the simple maths here. BSE Index was 100 in 1980. Now it is around 16000 in 2011. COMPOUNDING RATE OF RETURN @ 15+% per annum. No other, REPEAT, no other instruments has given this given returns. But, equity is NOT for short term investing. FDs are good for that purpose.

  6. Altaf Rahman says

    In investment there are two factors to be considered. RISK and REWARD.

    If one is young, a major % of the investment should go to stocks and nominal % should go to FDs / Bonds etc. As the person gets older, the % should gradually incline towards FDs / Bonds. Once the person is retired, even if the BSE Index crashes to 5,000, they should not put their money in Stocks. All their money should be in fixed income instruments.

    For those in middle age group, Its OK for those who invested when market indexes are at top to tear their hair. But for those who want to invest now when the markets have crashed, it is better to go with stocks / mutual funds. Stocks can not keep low for long. After every crash, there is recovery (just like after every peak, there is correction). At the moment when the stocks are at the lows of 16K-16.5K, the probability of recovery is more. People with liquid cash should ride with stocks.

    For those who start their earning life, FDs are a boring way to earn money. There is no excitement in these boring instruments.

    Now coming to retired people or those who are nearing retirement, even before investing in FDs, they have to study the companies before investing.
    Some companies like Avon Corp, Kolte Patil offer FDs at 12% pa, some companies like LICHF, Appolo Hospitals offer only 9.5% pa. What we have to see before deciding in favor of 12% interest deposits is the rating of these companies.

    Just my two paisa :)

  7. Ankit Agarwal says

    Valid thought as long as the inflation subsides to 6-7% levels (which i think it will be in due time). At 10% inflation, we are looking at a loss with the 9.25% return that a Fixed Deposit offers. No doubt that stocks and mutual funds might be more risky and there is no gaurantee of recovering even the invested amount, there is a potential upside too with a better than 10% rate of return.

    1. Banyan Financial Advisors says

      Hi Ankit,
      You have a very valid point. But from a point of view of asset diversification, you can have your debt portion invested in long term FDs and then enjoy investing into Equity and other asset classes.

      While FDs sound very simple tool, it can be made into a very powerful investment engine by tweaking the options you have to while booking it. Many of such options are documented in http://insight.banyanfa.com/?p=103.

      Please let me know if you need any further clarifications on above.


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