Why Do Indians Prefer Investing in Fixed Deposits?

Over 95% of Indian households prefer fixed deposits to other forms of investment like equities, etc. This is because their marginal propensity to invest is proportional to returns guarantee and risk-free nature. 


 To know about the benefits of investing in fixed deposits, read on!


Online Fixed Deposits on Kuvera


Features and Benefits of Fixed Deposit Schemes


Fixed deposits allow Indian investors to keep their money with banks for a fixed tenure. The investment period can range from 7 days to 10 years. The fixed deposit interest rate is generally higher than savings bank accounts.  


Fixed deposit schemes can be a standard, tax-savings type or those suitable for senior citizens, etc. Any Indian citizen, NRI, minor, institution, senior citizen, or partnership firm can open fixed deposit accounts.  



Some key benefits of investing in fixed deposits are as follows:


  • Fixed deposits are steady and regular sources of income. Banks typically credit the interest amount to the account holder annually.
  • Market volatility cannot affect the return generation from FDs. Thus, they are a low-risk investment option that offers decent returns. 
  • Fixed deposit account holders can take loans on up to 90% of their principal amount at an interest rate specified by the financial institution. 
  • Section 80C of the Income Tax Act states that individuals can claim tax deductions of up to Rs. 1.5 lakh against investments made in tax-saving fixed deposits.
  • Senior citizens can enjoy an additional fixed deposit interest rate of 0.5% on fixed deposit accounts.   



Different Types of FD in India


The various types of fixed deposit accounts are as follows:


  • Normal FDs:


Typically, fixed deposit accounts offer higher interest rates than a regular savings account, and the tenure is up to 10 years.   


  • Tax-saving FDs:


According to Section 80C of the Income Tax Act, tax-saving fixed deposit accounts can offer tax deductions of up to Rs. 1.5 lakh. Unlike other FDs, tax-saving FDs come with a lock-in period of 5 years. One cannot make a premature withdrawal before the lock-in period is over.  


  • FDs for senior citizens:


Senior citizens can enjoy a flexible tenure and higher interest rates. The cumulative form of these FDs computes interest on a quarterly/annual compounded basis, although they can withdraw the amount after maturity only. This is a decent way to grow one’s savings. Non-cumulative FDs allow account holders to withdraw the interest amount quarterly or annually. It helps meet monthly expenses, especially for retired individuals. 


  • Flexi FDs:


These fixed deposits enable account holders to link their savings bank accounts with FD accounts, thus allowing the flow of money between these two accounts. 



Factors Influencing the Fixed Deposit Interest Rate


Factors that influence the interest rate for fixed deposit accounts are as follows:


  • Deposit tenure:


    The interest rates obtained by FD account holders are directly proportional to the FD tenure. Thus a 7-year FD account will yield higher interest rates than a one-year FD scheme. Therefore, the choice of tenure (short/medium/long term) affects the interest rates that account holders receive. 


  • Credit rating:

    The credit ratings provided by companies like CRISIL and CARE determine the effectiveness of FDs. A CRISIL FAA+ or CARE AA rating ensures risk minimization and profit maximization. 


  • Interest rate:

    This factor defines the actual efficacy of fixed deposit accounts. Therefore, choosing the cumulative or non-cumulative FD type solely depends on one’s willingness to earn returns.


  • Loan against FD:

    Choosing an FD scheme involves provisions for availing loans on FDs. Investors can take loans of up to a certain percentage of the invested amount at an interest rate specified by banks. 


  • Efficacy of financial institutions:

    It’s essential to judge the effectiveness of the financial institution extending the FD scheme. The financial stability of these institutions determines their ability to provide the best inters rates and other value-added services. 



FD Interest Rates of Popular Banks as of May 06, 2022


Bank Name Interest Rate (General) Interest Rate (Senior Citizen)
ICICI Bank 2.5 – 5.75% 3 – 6.5%
State Bank of India 2.9 – 5.5% 3.4 – 6.3%
Canara Bank 2.9 – 5.5% 3 – 6.25%
HDFC Bank 2.5 – 5.5% 3 – 6.25%
Axis Bank 2.5 – 5.75% 2.5 – 6.5%


Final Word


Indians consider fixed deposit schemes one of the safest investment opportunities because they want to remain risk-neutral. Unlike other investment types, FD accounts are safe and reliable and yield low but guaranteed returns. Hence, senior citizens also prefer investing in schemes that offer the best FD rates.


If you’re looking to invest your money in a Fixed Deposit, Kuvera is the perfect platform for you. With Kuvera, you can compare different FD options from leading banks and NBFCs, and choose the one that best suits your needs. You can also select a convenient tenure and rate. The whole process takes just minutes and can be done with your primary bank account linked to Kuvera. So why wait? Invest today and watch your money grow!



Frequently Asked Questions


  • How much return can someone expect from a fixed deposit of Rs. 1 crore?


Banks may offer a fixed deposit interest rate of 6 – 6.5% for five years. A yearly income of Rs. 6 lakh is thus guaranteed. 


  • What is the best bank to invest Rs. 50 lakh in FD?


Investing in FD accounts is subject to many factors, including interest rates. Banks like IndusInd and Yes may provide one of the highest FD interest rates per annum, depending on the sum and tenure. That said, make sure to consider other factors like credit rating and the efficacy of the bank before opening a fixed deposit account.  


  • Why do banks sometimes ask for indemnity bonds for claiming FD returns?


Banks can ask nominees for an indemnity bond to claim returns earned on FD accounts. A legal heir certificate puts an end to this issue.



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