2 Reasons Why Bank Fixed Deposits Alone Won’t Make You Rich

There is no doubt that bank fixed deposits (FDs) are considered safe in that you will most likely get your money back. But did you know that bank FDs can negatively affect your savings over the long term?

#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 before tax and around 7% after tax. This means, you are effectively losing money every year you invest your money in a 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 mutual funds! See the graph below for FD vs mutual fund comparison.

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