Many people in India save their money in various bank Fixed Deposit or Term Deposit plans. FDs or TDs offer security and liquidity. Unfortunately, over the past few years the interest rates being given by banks has been dropping. Currently most banks are giving interest of about 6% on deposits of 1 to 2 years. It is expected that rates will drop further over the next few years. This is in line with trends in other countries of the world, especially the developed countries.
The reason for this is very simple. Interest rates are based on loans taken by businesses and individuals also known as borrowers. As more and more borrowers take loans from banks the demand for loans goes up and banks charge higher interest rates for giving those loans. But where will the banks get the money to give to the borrowers? This is when banks start to offer higher interest rates to the common people or depositors, and the interest on Fixed or Term Deposits goes up. On the other hand, if the number of borrowers goes down or the amount of loan required goes down, then banks will have too many deposits lying with them. How will they pay high interest rates on deposits if there is lower income from borrowers? This is when banks reduce interest rates on Fixed or Term Deposits.
A developed country means that the country is affluent, the businesses and individuals in that country are well off and do not need to take loans. In short, as India develops more and more (something that we all desire), loans and borrowings will go down, and interest rates will go down. Along with that, the time period for high interest deposits will also go down. This is why 20 years ago we enjoyed 12% interest rates on 10-year deposits, but today getting 7% for more than 2 years is practically impossible with most banks.
So, what can you do with your hard-earned savings? The best option is Insurance Investment which gives you 3 main benefits:
- Guaranteed returns with interest rates equivalent to FD rates over a very long time period, sometimes lifelong. Even if FD rate is slightly higher, it is not long-term and, on renewal, will definitely be lower than current rate. Thus, if FD is giving you 7% for 2 years, after 2 years the rate will definitely become 6%, then 5%, and so on. On the other hand, if Insurance Investment rate is 6% for 20 years, you will continue to receive 6% for 20 years guaranteed by the company and strictly enforced by the government.
- Death benefit. FD does not have any death benefit. Most Insurance Investment plans will pay your survivors 10 times your deposit premium if you die within the insurance period.
- Tax benefit. Most Insurance plans have tax benefits on both input investment and maturity returns. FDs do not have such tax benefits.
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