There is no doubt that bank fixed deposits (FDs) are safe in that you will always get your money back. But did you know that bank FDs can negatively affect your savings over the long term? (see the shocking graph at the end)
#1: FDs give returns below inflation
The average inflation rate in India for the last 2 years (2012-2014) is 9.76%. Most FDs only give you about 8.5% interest. This means, you are effectively losing money every year you invest your money in an FD.
#2: FDs are taxable, which further reduces the net amount you earn
Compared with equity mutual funds, long term returns from which are tax free, FD interest is taxable at your current tax slab. The higher your income, the lower your FD return will be.
That raises a question- “if bank fixed deposits are not a good way of allocating all my savings, how else should I invest my money?”
Invest in the top equity mutual funds! See the graph below for FD vs mutual fund comparison.
#1: FDs give returns below inflation
The average inflation rate in India for the last 2 years (2012-2014) is 9.76%. Most FDs only give you about 8.5% interest. This means, you are effectively losing money every year you invest your money in an FD.
#2: FDs are taxable, which further reduces the net amount you earn
Compared with equity mutual funds, long term returns from which are tax free, FD interest is taxable at your current tax slab. The higher your income, the lower your FD return will be.
That raises a question- “if bank fixed deposits are not a good way of allocating all my savings, how else should I invest my money?”
Invest in the top equity mutual funds! See the graph below for FD vs mutual fund comparison.
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