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How to choose the most suitable fixed deposit by balancing risk and returns

Split your FDs among 3-4 banks, with a mix of NBFCs, small finance banks and commercial banks to maximize your returns and minimize your risks

April 28, 2021 / 02:49 PM IST

Financial Wisdom says bank fixed deposits (FDs) are the safest investments with low returns, which may sometimes not cover for inflation. The observation is partly right if you consider FDs of large commercial banks for investment. However, today, there is a wider choice of FDs available from private sector, small finance and payment banks that give high returns. Further, there are many non-banking finance companies (NBFC) offering FDs at high interest rates.

The highest FD rate today is 7.75 percent. Adjusted for an average inflation rate of 4-4.5 percent, it still leaves you with a scope of earning a real return of 3-3.5 percent with zero or minimal risks on your invested money.

So far, so good. But, the next logical question that comes to mind is that “Are these FDs still as safe as the conventional FDs of large banks such as State Bank of India (SBI)?” Let’s evaluate different types of FDs.

Also read: SBI warns its customers to beware of online fixed deposits fraud