Which is more beneficial in terms of return, bank FDs or Government Bonds?

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If you have some spare money and want to but are afraid of the ups and downs of the stock market, then this information is for you. Actually, no investment is completely risk-free. However, there are some investment options where the risk is almost nil. The return is fixed and your money is quite safe. First of all, let’s talk about Fixed Deposits i.e., FDs.

Fixed Deposit Banks have increased interest rates of Fixed Deposit as repo rate has been increased to control inflation. And since then, investment in FD has also increased. FD gives a guaranteed return on investment. Usually, these can be opened with Rs 1,000. The deposit amount can vary in different banks. You can invest for 7 days to 10 years. Larger banks like SBI are giving annual interest in range of 3 percent to 7.10 percent, HDFC Bank gives in range of 3 percent to 7.25 percent. ICICI Bank from 3.00 percent to 7.10 percent.

Small banks like DCB Bank are giving interest in range of  3.75 to 7.75 percent, RBL Bank from 3.50 to 8 percent, IDFC First Bank from 3.50 to 7.50 percent and Ujjivan Small Finance Bank from 3.75 to 8.25 percent. These rates are for deposits less than 2 crore rupees. Senior citizens are being offered up to 0.50 percent more interest.

Like banks, NBFCs and other companies offer Corporate Fixed Deposits, also known as Company FDs. These companies offer higher returns compared to banks. Corporate FDs are a good option for those who want higher returns.

According to Bank Bazaar, Bajaj Finance is offering up to 8.60% on Company FDs, Mahindra Finance from 7.40% to 8.05%, Sundaram Finance Company from 7.25% to 7.53%, and Muthoot Capital from 7.50% to 7.75%.

Compared to Bank FDs, Corporate FDs carry more risk because banks insure your deposits of up to Rs. 5 lakh. This is not the case with Company FDs. Therefore, only opt for high-rated Company FDs.

Just like a common man goes to a bank for a loan, the government issues bonds when it needs money. In return for the bond, the buyer is paid interest. Securities with shorter tenures of 91, 182, and 364 days are called Treasury Bills or T-Bills. While, longer tenure securities are called Government Securities or G-Secs. Compared to FDs, bonds are considered safer because these come with a sovereign guarantee. Bonds can be purchased from the RBI’s Retail Direct platform, banks, post offices, and brokerage firms. These are also  traded on the stock exchange. In addition to the central government, states, municipal corporations, government companies  and private companies also issue bonds.

Question-1)- Which is more beneficial in terms of return: Bank FD or Government Bond? What should one keep in mind while investing in bonds?

Next up is the Post Office’s Small Savings Schemes… This includes Time Deposit, Public Provident Fund (PPF), National Savings Certificate (NSC), and Monthly Income Scheme (MIS)… Time Deposit is similar to Fixed Deposit… Currently, a one-year Time Deposit offers an interest rate of 6.9%, two and three years offer 7-7%, and five years offer 7.5%… An account can be opened with minimum  of 1,000 rupees… There is no maximum limit on deposits.

The Public Provident Fund i.e., PPF currently offers a compound interest of 7.1%… A minimum of 500 rupees and a maximum of 1.5 lakh rupees can be deposited in a year either in lump sum or in installments. It has a maturity period of 15 years. The National Savings Certificate i.e., NSC offers a compound interest of 7.7%.  This account can be opened with Rs.1000. Multiple accounts can be opened and any amount can be deposited. It has a maturity period of 5 years.

In the Monthly Income Scheme (MIS), a maximum of 9 lakh rupees can be deposited in a single account. and Rs. 15 lakh in a joint account. It offers an interest rate of 7.4%, which will be received every month… This scheme is for 5 years. An account can be opened with a minimum of 1000 rupees.

The current interest rates in Small Savings Schemes are valid until September 30, 2023. The government reviews these every three months.  Therefore, interest rates may decrease or increase. There is a tax exemption under Section 80C of the Income Tax Act on investment in 5-year Time Deposit, PPF, and NSC.

Gold is considered a safe investment, especially when the world is stuck in inflation, there is scenario of rising interest rates, and other global uncertainties. Gold has given a return of approximately 12% in the last one year.  Considering the prices, not everyone can afford to buy gold… In such a case, one can invest in Sovereign Gold Bonds or (SGBs). It offers an annual interest of 2.5%. Gold can be purchased from one gram to up to four kilos. You can apply for RBI’s SGB scheme at a bank branch or post office. You can also apply online. Sovereign Gold Bonds are traded in the stock market, so you can also buy from there.