Fixed deposits (FDs) have been called boring, outdated, even a poor bet against inflation, and may have fallen out of favour in recent years, but they never really disappeared.
In the race for higher returns, fixed deposits were often written off as a thing of the past. They stayed in the background, overshadowed by equities and gold. But as global tensions shake markets and volatility rises, FDs seem slowly stepping back into the spotlight.
When we look closer, fixed deposits might have never really gone out of favour. Even today, a large portion of household savings continues to sit in bank accounts, despite years of debate around low returns and inflation.
Out of nearly Rs 190 lakh crore in bank deposits, around Rs 108 lakh crore is parked in fixed deposits, while another Rs 63 lakh crore sits in savings accounts earning very low interest, according to RBI and InCred Money data, as of March 2023. The preference for safety remains clear.
But now, with global tensions rising and markets turning volatile, that traditional instinct may be starting to look more relevant again.
Abhishek Kumar, Sebi RIA and founder of Sahaj Money, said the current global environment is pushing investors towards safer options.
“The global investment landscape is characterised by heightened volatility and shifting trade policies, prompting a flight to quality among risk-averse participants,” he said.
Investors are becoming more cautious in such conditions.
“Investors are increasingly prioritising capital preservation through fixed-income instruments like fixed deposits to mitigate unpredictable equity market swings.”
He added that this reflects a broader shift in behaviour.
“This shift reflects a cautious stance as markets navigate geopolitical uncertainties and the long-term impacts of technological disruption.”
FD VS EQUITIES AND GOLD
Over the last few years, fixed deposits have not delivered the highest returns.
“Equities and gold have generally outpaced fixed deposits over the last few years, with gold benefiting significantly from global uncertainty and currency fluctuations,” Kumar said.
However, FDs have played an important role during volatile periods.
“While fixed deposits offered lower nominal returns, they provided essential stability during periods of high equity drawdown and market correction.”
That is how investors should see them today.
“Fixed deposits should be viewed as a stabilising foundation that protects the principal amount rather than a primary driver of high-growth wealth creation.”
FD INTEREST RATES AND WHERE THEY STAND
One reason FDs are back in focus is the current interest rate environment.
“Major public and private banks currently offer interest rates between 6.0% and 7.5%, while small finance banks lead the market with rates ranging from 8.0% to over 9.0%,” Kumar said.
Higher returns often come with questions around safety, but there are safeguards in place.
“These higher rates from smaller institutions are generally considered manageable risks because deposits up to Rs 5 lakh per bank are protected by the DICGC insurance scheme.”
He added that investors can reduce risk through diversification.
“Investors can effectively mitigate this risk by spreading their funds across multiple institutions instead of concentrating them in one bank.”
Public sector banks continue to dominate deposits in India.
Nearly 60% of all bank deposits are held with PSU banks, largely due to their wider reach and the perception of trust among depositors.
DO FIXED DEPOSITs BEAT INFLATION?
Fixed deposits have long been criticised for not keeping up with inflation.
“Fixed deposits are currently delivering marginal real returns as inflation has stabilised within the 2% to 4% range while interest rates remain relatively high,” Kumar said.
However, taxation remains a key factor.
“For those in higher tax brackets, the post-tax yield may still struggle to significantly exceed the cost of living after accounting for interest income taxes.”
This defines the role of FDs in a portfolio.
“In this context, fixed deposits function primarily as a tool for wealth preservation and capital protection rather than aggressive real growth.”
WHY FDs ARE BACK IN FOCUS
In uncertain times, the focus often shifts from returns to protection.
“During periods of high global uncertainty, prioritising safety ensures that capital remains available for short-term needs and avoids forced selling of volatile assets,” Kumar said.
FDs play a key role in balancing portfolios.
“Fixed deposits serve as the defensive anchor of a balanced strategy, providing a predictable cash flow that offsets the inherent risks of growth assets like stocks.”
This also helps investors stay invested in equities.
“This stability allows investors to maintain their long-term equity positions with less psychological stress during market downturns.”
SHOULD YOU INCREASE FD ALLOCATION?
Given the current environment, increasing allocation to FDs may be a sensible move.
“Increasing allocation to fixed deposits is a prudent decision to lock in current high interest rates before potential future rate-cutting cycles begin,” Kumar said.
However, allocation depends on the investor’s profile.
“A balanced investor may allocate around 40% to 50% to fixed deposits, while more aggressive or younger investors may keep it between 15% and 25%.”
He added that this should be customised.
“This allocation should be tailored based on individual liquidity needs and financial goals.”
BEST TENURE AND TIMING FOR FDs
The tenure of investment is also important.
“The most attractive tenures currently fall between 1 and 3 years, as these periods often offer the peak interest rates in the current cycle,” Kumar said.
There may also be a timing advantage at present.
“This is an opportune moment to lock in these higher yields before rates stabilise or gradually decline.”
He suggested a practical approach for investors.
“A laddering strategy can help maintain periodic liquidity while securing current returns for the medium term.”
Fixed deposits may not deliver the highest returns, but they are becoming relevant again for a different reason.
At a time when markets are uncertain and volatility is high, the focus is shifting from maximising returns to protecting capital.
FDs, once seen as outdated, are now finding their place again, not as wealth creators, but as a stable base in an uncertain investment environment.
