Does Your FD Offer Inflation-Beating Rates? Steps To Sieze Value-Returns On Your Savings

Fixed Deposits are the most stable and reliable form of investment tools offered in India for secured returns. A working-class individual has limited options available for risk-free investments to hedge against inflation. Fixed deposits(FD) rescue individuals from undermining below the inflation force and provide a fixed return on their deposits either through quarterly or annual payments. In India, some of the best private and public sector banks provide a fixed deposit interest rate in the range between 5.5% to 7.5%, which would vary depending on the deposit tenure.

The rise in prices of services and commodities persistently over time is termed as inflation. It means that the purchasing power held by us gets weaker as overall prices increase and the value of the money decreases based on that. To counter this, traditionally fixed deposits play a crucial role if the rate of interest remains higher than the inflation rate for that particular year. Despite the type of fixed deposit chosen by an individual, inflation tends to have an impact on the returns in case the interest rate for the fixed deposit stays lower than the overall inflation rate.

Here are a few steps that a layman can optimise to gain comparatively good returns from their investments through the safest and risk-free method of fixed deposits.

Comparing Interest Rates

An investor eager to park funds in a fixed deposit account for confirmed returns must speculate all available options depending on their requirements and tenures. After careful consideration, a suitable scheme that can beat the inflation rate in the desired tenure can be adopted.

Diversification of Funds

The famous phrase, 'not to put all eggs in one basket' applies strongly to modern-day investments. Diversifying our investments or deposits in various financial instruments and asset classes is critical to cope up with modern investment challenges. It is advisable for individuals to not accumulate all their funds in one fixed deposit and rather divide their investment appropriately among various FD types available with banks and NBFCs.

Short-term Fixed Deposit Schemes

Indian institutions offer multiple Fixed deposits with varied interest rates and tenures ranging from 10 days to 10 years. When the market is facing inflationary tenures, one can opt for utilising short-term FD to ensure a fixed rate of return upon maturity.

Laddering Fixed Deposits

According to RBI guidelines, institutions have to pay interest earnings to account holders every quarter. The laddering strategy involves re-investing interest earned through the FD as well as extending the matured FD for longer tenure generating even higher returns with deposit amounts, added with high interest rates earned in the process. One of the key aspects of this method is the power of the compounding which comes into effect after appropriate tenures with accumulated returns.

Rolling Over Fixed Deposits

Depositors can adopt a few of the best interest-rate fixed deposits with varied tenures and park their funds equally among the selected options. For example, if one has around Rs. 6 lakhs to hold in fixed deposits, they can split their funds into three parts one lakh, two lakhs and three lakhs. These three splits would be invested in different maturity tenure deposits like one-year, two-year and three-year.

When the first FD matures, the amount collected with interest earnings can be extended for another three years and when the second fixed deposit matures after two years, they can consider extending the maturity period for another two to three years depending on their requirements and so on. This method can beat the rising inflation with attractive returns and comparably offer higher earnings from the same amount if parked in a single FD.

The latest fixed deposits interest rates of top 5 Indian banks in terms of market share are:

Sr. No.	Name of The Bank	FD Interest Rates (more than a year)
1	HDFC Bank	6.60% to 7.00%
2	ICICI Bank	6.70% to 7.00%
3	SBI	6.80% to 7.10%
4	Kotak Mahindra Bank	7.10% to 7.45%
5	Axis Bank	6.70% to 7.00%