Falling FD rates? Here is where you can put your money


Fixed Deposit (FD) rates continue to plunge, making FDs a rather unattractive investment option. With the hope of regular interest income dropping, many investors have taken a beating. This is true especially for senior citizens, who bank on FD interest as one among their supplementary sources of income post retirement.

The average rate of interest offered by banks or financial institutions is not more than 6 to 7% p.a. The Reserve Bank of India (RBI) has even cut down 25 basis points but this has not helped improve the situation or create a favorable environment in any way.

Now the question is, what should investors do to beat low FD interest rates?

There are quite a few investments one can make to even out the loss in interest income due to plugging FD rates. Some of the options include Employees Provident Fund Organisation (EPFO) investments, debt mutual funds, Public Provident Funds (PPF), Senior CItizens Savings Scheme (SCSS), Post Office Savings Schemes, Systematic Investment Plans (SIP), etc.

A wise investor must make the right decision at the right time to create a good and profitable investment portfolio. Let us explore some of the alternative investment options:

Systematic Investment Plan (SIP)

To meet long-term financial goals and to earn an attractive rate of return, a SIP is the best option. SIP is a type of equity mutual fund where an investor puts in a set sum of money for a pre-decided period of time. SIPs work on the compound interest formula and hence there is a reinvestment of the interest earned.

For example, if an investor, puts aside a sum of Rs.1,000 per month in a SIP account for a period of 10 years at the rate of 12%, the total maturity amount after the said period will be Rs.2,32,339. The earlier an investor makes a SIP investment, the better it is. However, this does come with a small element of risk, especially if the market is down. If stocks fall, losses are bound to arise.

Debt Mutual Funds

One can make investments in a different type of debt-related mutual funds. These may be short-term, medium-term, long-term, liquid funds, corporate bonds, etc. Many of the short-term funds offer returns at the rate of 8.62%. One can also invest in a range of fixed income securities. These type of investments come with a certain fixed maturity date and investors can earn a fixed interest rate.

Corporate Fixed Deposits

Apart from bank FDs, there are many non-banking companies and financial institutions that offer FDs at a much higher rate of interest. These come with flexible tenure options and provides liquidity. One can make a premature withdrawal at any point of time and still earn interest up to the day of withdrawal.

These types of investments offer interest computation and payment on a monthly, quarterly, half-yearly and annual basis. However, the downside is though these type of FDs are high paying, it may not be as secure and safe as a bank FD. Hence, there is a certain element of risk involved.


The good old EPFO offers a standard rate of 8.65%, which is much higher than what most banks offer for FDs. This is a good bet because there is a zero element of risk involved and there are assured returns after the completion of the stipulated period of time.


With an average rate of return of 8.3%, SCSS schemes are the best investment options for senior citizens, who depend on interest as one of their main supplementary sources of income. One can make an investment for a period of 5 years initially and then extend the duration by another 3 years and so on. The upper limit on the maximum amount that can be invested under this scheme is Rs.15 lakh. This acts as a regular income source for investors and hence it is a good alternative to FDs.

PPF schemes

PPF schemes are a safe and secure alternative to FDs. The average rate of returns offered on these types of schemes is 7.8%, which is relatively good. The main advantage of this type of investment is the no-risk element. The investor will gain assured returns without any hassle at the end of the maturity period.

Most conservative investors tend to stick to FDs because it comes with many benefits such a fixed rate of interest, security and also offers liquidity. An investor can withdraw his/her FD at any point of time and can also take a loan on the FD. Senior citizens are also eligible to earn a higher rate of interest, over and above the usual rate of interest offered to individuals. The younger generation can take a small amount of risk and invest in other financial instruments.

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