What Are Best Reliable Alternatives To Fixed Deposits (FD)?

In times of uncertainty, it is possible that interest rate on fixed deposits can be reduced by several banks in the near future

With a risk-averse culture, investors in India have a significant preference for fixed deposits. It is estimated that more than 90% of investors in India have some of their savings parked in fixed deposits. However, based on current uncertain times, it is possible that interest rates on fixed deposits could be reduced in the near future. If you are not satisfied with the interest earned on your fixed deposits, here are some other reliable options you can consider.

Post Office Savings Schemes – There are various investment options available at post offices such as Post Office Time Deposits, National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS). Interest rate earnings on these investments are in the range of 7.5% to 8.2%. You can invest in the name of your senior citizen parents to get the max interest rate of 8.2%. Since these are backed by the Government of India, you can expect guaranteed returns with high safety. You can also avail tax deductions under Section 80C for up to Rs 1.5 lakh.

Public Provident Fund (PPF) – This will be suitable if you are looking at retirement planning. Annual interest rate of around 7.1%, but you stand to gain much more due to the compounding effect over several years. PPF is also backed by the Government of India and is eligible for tax benefits under Section 80C. PPF is considered better than fixed deposits, as the compounding factor increases the effective returns. For max gains, you have to ensure a 15-year tenure for your investment in PPF. You can withdraw partially only after 5 years.

RBI Floating Rate Savings Bonds – These are issued by the Reserve Bank of India and come with a tenure of 7 years. Interest rate can be around 8.05% per annum. It is linked to the NSC, wherein an addition 0.35% is applied to the NSC interest rate. Interest rates are adjusted semi-annually. While interest rate is higher, there is no tax benefit for RBI floating rate savings bonds scheme. One also has to accept the lock-in period of 7 years.

AAA-rated corporate bonds – Rather than raising money from the market, many corporates borrow directly from retail investors via corporate bonds. Depending on the company you choose, the interest rate could be anywhere between 7.5% to 9%. Corporate bonds usually offer higher returns than fixed deposits. For reducing risks, you can choose corporate bonds that are AAA rated by agencies like CRISIL or ICRA). While corporate bonds can be beneficial, they do not have tax benefits.

You can use the above investment options to diversify your portfolio. This way, even if fixed deposit interest rates fall in the future, you can still stay on track to achieve your ROI targets.