Bank FDs are coveted financial instruments for many people when it comes to keeping their surplus wealth parked in the same. These investment avenues attract those who do not have high appetites for risk. Fixed deposits are considered secure investments and are not exposed to any market risks. This makes people choose this instrument over riskier alternatives although the returns are quite low indeed. Currently, 7% is an average rate of interest on fixed deposits across varied durations.
FDs are suitable for those who seek assured and regular returns. The portion of your corpus that is invested in FDs should be determined by the risk appetite that you have and your needs in terms of liquidity. However, everyone’s portfolio should include fixed deposits as per experts. FDs are safe financial instruments and could be used for investing with a short-term horizon like 3-5 years. Experts feel that due to the lower risk quotient, FDs are ideal for meeting requirements over a shorter time period such as admission/college fees, down payments for home loans or car loans and so on.
Long-term goals should ideally be de-linked from your bank FDs. Short-term goals which are even below a year can be tied to interest income from fixed deposits once you do the math. FDs also help in keeping emergency money and other contingency funds safe and secure. This contingency fund, instead of earning lower returns in the savings bank account, will keep earning decent interest income when parked in a fixed deposit. Beyond this, earning higher returns from FDs is not possible in the current scenario and one should not put the entire corpus in a fixed deposit if earning higher returns for long-term goals is a priority.
Senior citizens also rely on bank FDs since they are usually averse to taking risks. Conservative investors can always opt for bank fixed deposits and get assured income which is slightly on the lower side but secure.