Fixed Deposits have a long history of being the safest bet when it comes to investing your money wisely. In fact, as early as two years ago, an RBI study claimed that bank deposits account for approximately 57% of savings made by individual households.

Fixed deposits are invaluable for a lot of reasons. They preserve your capital and keep your money safe. They also ensure stability and a fixed amount of returns on your investment. Fixed deposits can be liquidated quickly and your principal can be in your hands within only a few days or maybe even hours. Thus they offer a very convenient way of investing your excess funds and savings.

If you think you’re a little down on your luck in the shares or stock markets, fixed deposits can come to your rescue, regardless of your misfortunes. They are also quite beneficial in emergencies or in case you’ve set short-term financial goals.

And that is where the problem lies. In the short term, FDs are a lucrative idea. But what about when it comes to long-term investments? How do they fare when invested for a longer tenor like 8 or 10 years? Not well at all, according to historical data.

Fixed Deposits—the long and short of it

These financial instruments might be profitable for, say, a maximum maturity of 5 years, but after that, studies show that you’re just losing your hard-earned money.

Here’s why:

What are your Fixed Deposit returns after tax deduction?

If you consider the standard interest rate of 8% to 9% for a fixed deposit between 5 to 10 years, you can figure out for yourself how a fixed deposit chews through your savings rather than enhances them. You just have to consider the post-tax returns as opposed to pre-tax returns, which is a common mistake. Because even from the first year, once you pay taxes, your rate of interest drops from 9% to 7.2% if you belong to the 20% income tax slab bracket. That is why Fixed Deposit for longer durations works against you.

What are your Fixed Deposit returns after inflation?

If you’re considering an FD for longer durations, it becomes necessary to account for the role of inflation in your financial plans. The purchasing power of the Indian rupee has undergone a drastic reduction over the past couple of decades. Even if you take into account a modest rate of inflations, say 8%, and your rate of return is around 7%, you are actually losing money. As if this wasn’t enough, imagine the ramifications when your fixed deposit maturity tenor is 10 years. The negative impact on your returns will be much higher in this case.

Unless it’s for a term equal to or less than 5 years, don’t consider Fixed Deposits

Fixed deposits are a great method of capital preservation if you want to invest for say 12 to 36 months, or safeguard your money for emergency situations.

FDs offer stability, safety and good returns but keep in mind that long-terms fixed deposit investments may not be making you money.

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