The Popularity of Fixed Deposits: A Safe Haven for Conservative Investors

Did you know that, on average, Indians save approximately ₹425,725.54 in fixed deposits (FDs)? When investing hard-earned money, conservative investors often prioritise safety and reliability. 

Among the numerous options available, Fixed Deposits (FDs) are highly popular among conservative investors. This blog post explores why FDs are favoured and how they can benefit investors. 

What is Conservative Investing? 

Conservative investing prioritises capital preservation over growth by investing in lower-risk securities, such as blue-chip stocks, fixed deposits, money market instruments, and cash equivalents. For conservative investors, FDs are usually the first choice regarding growing personal wealth. 

According to recent estimates, fixed-income investments in India represent approximately 70% of all investment assets. This substantial share underscores their widespread popularity and highlights their critical role in conservative investing and financial planning.

Growing Your Money with the Power of Compounding

FD interest is calculated based on the compound interest calculation method. This allows investors to earn interest not only on the principal amount but also on the interest. The accumulated interest is reinvested, leading to increased returns over time. 

Higher Interest Rate

Banks like Ujjivan SFB offer high-interest FDs designed to maximise your savings. Senior citizens are eligible for additional interest rates, generally up to 0.50% over and above the normal FD rates.

FD Interest Rate is Fixed 

One of the primary reasons for the popularity of fixed deposits among conservative investors is the fixed rate of interest they offer. Unlike market-linked investment instruments like mutual funds, where returns fluctuate based on market performance, FDs provide stable returns throughout the investing period. This predictability allows investors to plan their finances accurately. 

Fixed Deposits are Reliable 

For conservative investors, FDs are considered safe and reliable investments. They are backed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides insurance coverage of up to ₹5 lakhs per depositor. This ensures the protection of hard-earned money. 

FDs also offer an automatic renewal facility for fixed deposits, ensuring continued growth. Additionally, loans or overdraft against FDs can be availed, providing financial flexibility without breaking the investment.

FDs Have Flexible Tenure 

The flexibility of investment periods is another factor contributing to the popularity of fixed deposits among conservative investors. FDs can range from 7 months to several years, allowing investors to align their investments with their financial goals. However, there are special FD schemes like Tax Saver FD that may come with a pre-determined lock-in period. 

FDs are Convenient 

For risk-averse or conservative investors, FD investments are hassle-free and convenient. Technological advancements allow FDs to be opened online through your bank’s website or mobile banking application. This eliminates the need for physical paperwork. 

Monitoring investments is also simplified, with real-time updates available through the bank’s online platform and mobile app. 

FDs Have More Liquidity 

Although FDs offer higher returns in the long-term, they also offer a certain degree of liquidity. For callable FDs (FDs with no lock-in period), you can withdraw the deposit after 7 days from the time of investment. But there's a catch. There could be a premature withdrawal fee, which will be imposed on the prevailing interest rate pertaining to the tenure at the time of withdrawal. This means you won't be eligible for the interest rate offered at the time of opening your FD account.