At a time when equity markets are facing a lot of heat due to the COVID-19 pandemic, with volatility dominating, investors are forced to look for a safe haven wherein they can save capital and get assured returns. In their search for safer options, they are turning to the option that has been the first choice across generations — fixed deposit (FD). However, despite its image of a safe haven for investors, fixed deposits come with their own share of investment risks that all investors must be aware of before choosing their option. The following points must be taken into account before opting for a bank fixed deposit.
1) Park Your Money With A Reputed Bank
In case you wish to put your money in an FD, it’s better to do so with a reputed bank and not get lured by high rates offered by banks that are relatively new. To put it simply, interest rates shouldn’t be the sole guiding factor while choosing a bank for an FD.
2) Real Return Rate From FD’s Are In The Negative
Real rate of returns is the return you get after adjusted for inflation. Because of a sluggish economy on account of the pandemic, the Reserve Bank of India has tried to infuse liquidity into the system by cutting the repo rate, which is also the rate at which it lends to banks. The risk with negative real returns is that you may fall short of the desired corpus. For long-term goals, it’s vital to invest money in instruments that can combat the effects of inflation.
3) Default Risks
While default risks with banks are rare, they can happen. In the event of a default, a deposit amount including interest of up to Rs. 5 lakhs is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). As an account holder, your money only up to Rs. 5 lakhs is insured. Any amount over this is subject to default risk.