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Know your real returns on fixed deposit

Mar-28-2022


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For many of us, across generations, fixed deposits (FDs) are the preferred method of saving. Fixed deposits are considered safe and liquid assets that can be used to fulfill any unforeseen urgent need. Most of us see them as investments to help us increase our money, and for many Indian households, FDs are their sole source of income.

While this may appear to be a terrific way to save and invest, we often overlook inflation while investing in fixed deposits, i.e., how much are we really earning when we put our money in an FD? What is the actual return on your FD investment?
Inflation is defined as the rate at which the value of money depreciates over time. Inflation rates are also influenced by a variety of global, local, and market factors, all of which are beyond our control. Consider the number of kilos of potatoes you could get for Rs 100 in 2011 versus today. For the record, 100 rupees will get you nearly twice as many potatoes. Or how our parents remember the worth of Rs. 100 in their day, often reminiscing about how much it could buy you 20 years ago, despite the fact that technology and modern manufacturing have reduced the cost of many of the products and services we use.

While Inflation in India has been within controlled levels over the last seven years, however, retail inflation has surged to 6.30% in May 2021. Loose monetary policy across the world, including in India, would result in a high inflation environment for the next few years. Bank FD returns, on the other hand, are anticipated to stay low due to the central banks' and government's focus on economic recovery following COVID.

Real returns, i.e. interest
rate (minus) inflation, are anticipated to be negative for the short to medium term due to the confluence of high inflation and poor returns offered on FDs to investors. Negative real returns decrease the value of our savings over time, implying that money resting in an FD is losing value.

Furthermore, we frequently overlook the tax owed on FD interest earnings. Given current and predicted inflation, as well as the tax burden on interest earnings, it's critical to understand and re-estimate your real FD earnings.

If you're unsure what to do, we recommend checking out IndiaP2P, your go-to destination for alternative investing.  IndiaP2P provides scientifically designed investment products that reduce the risk of losses while maintaining high returns (2x of returns offered by FDs).

FYI: An average Indian family consumes over 100 kilos of potatoes every year.

 

Author: Ravinder Voomidisingh

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