How Safe Is Your Fixed Deposit Investment?

Posted by richatm
June 23, 2017

Self-Published

We put a considerable part of our earnings into savings. Many of us seek to invest our savings and opt for a fixed deposit investment. They are generally considered fairly low-risk investments, and people are not worried about losing their money when they invest their hard-earned savings. However, it is common to have fears and doubts that come in the way of prudent investments. If you are worried about what happens to your FD when a bank or lender is unstable or if it becomes insolvent, here’s all you need to know:

hOW SAFE IS YOU FIXED DEPOSIT

Your Deposits are Safe:

When you open an FD in a bank, the money in your fixed deposit account is safe. This is due to effective regulation by the Reserve Bank of India (RBI). Regardless of what happens to your bank, the RBI has made deposit insurance compulsory for all banks. However if you invest in company FD or an FD with an NBFC, your deposit is subject to some risk. You can mitigate the risk by checking the agency security ratings of your FDs and only invest in FD schemes that are rated high on stability and security to protect your investment. 

What you Need to know about Bank Deposit Insurance:

No matter what happens to your bank—whether it shuts down, gets liquidated or is merged with another bank—your money is protected. Each fixed deposit account holder is insured up to 1 lakh rupees.

Which lender is the Safest Option?

Banks in India fall under different categories such as private sector, public sector, co-operative banks, and even foreign banks. All of these banks offer fixed deposit investments. Secondly, all banks in India, regardless of sector, are covered by the deposit insurance. Therefore, it is impossible to quantify banks as safe or unsafe as they are all equal when it comes to protecting your investment.

What if your Investment is More than Rs.1 lakh?

The maximum amount of money you are insured for is Rs.1 lakh per fixed deposit account. Even if your fixed deposit investment is in different branches of the same bank, it is totalled for the purpose of insurance, and capped at Rs.1 lakh. However, you can increase your deposit insurance cover by opening your fixed deposit account in different banks. As the money is separate, the deposit insurance applies individually.

Diversify your Portfolio with a Fixed Deposit

If you want to diversify your deposits, Banks and NBFCS are an options you should consider for several reasons. They offers some of the most competitive interest rates when it comes to fixed deposit accounts. For one, you do not have to settle for a low interest rate, when you could earn as high as 8.05%. When interest rates fluctuate, dropping one day and rising on another, investors look for security, and choose fixed deposit with high rate of interest, as it is not volatile. Secondly, a fixed deposit account is not dependent on the market. It is steady and stable. It remains risk free even if the economy is unstable or the market is fluctuating.

A fixed deposit account is essential for your portfolio. Wise investors diversify their investments, dabbling in low and high-risk options. However, a fixed deposit investment remains a consistent favourite for augmenting savings. Several generations have looked upon fixed deposits favourably, as their money is safe, and yields a high rate of interest over a period of time. Lastly, a fixed deposit investment is greatly benefits senior citizens, who can even invest their life’s savings without facing a risk. They are permitted an additional rate of interest, as much as 0.25% more than the average interest.

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