Are fixed deposits worth it

As Srilankans, if you ask someone what is the best way of investing, mostly they will end up with fixed deposits. What fixed deposit means? Because fixed deposits are the conventional safety ways to put your money to grow. But the hardest truth is it’s not an investment scheme. It’s moreover a saving scheme.

Because the average fixed deposits rates in sri lanka is nearly 6-7% and the inflation is over 14%. (At the time of this article written) so the investment which can’t stand close with inflations is not a great investment for long term.

(The fixed deposits for senior citizens is 15% annually. So except that other schemes are not worth considering)

Advantages of Fixed Deposit

• Flexible 

Fixed deposits (FDs) are a safe investment that provide returns and are relatively flexible. If you’re in an emergency situation and need to withdraw some money before your FD matures, however, they can only do so within certain limits.

• Interest 

Additionally, FDs generally earn better interest rates than typical savings accounts because you commit to leaving your money there for a specific length of time. banks and other institutions use FDs as a way to ensure their long-term cash flow is locked in. As such, it’s smart to have enough cash put away to cover short-term expenses.

• Accessibility

It’s very easy to put your money into fixed deposits compared to investing into other schemes. Opening a fixed deposit is very easy as you can do it in a day. You don’t need a high security regulations or control over your account. Everything can be monitored by the bank itself

• Safe 

Even though it makes sense to keep at least one year’s worth of expenses in safe investments like FDs just in case unexpected things happen. This means even if a bank were to go belly up; you’ll still be good. CBSL will repay the 100% investment. So sleep easy when putting money into an FD.

Disadvantages of Fixed Deposit

Fixed deposits may seem like an easy way to invest your money, but they’re actually one of the worst ways to invest and make money long-term. They’re an extremely bad choice if you’re looking to build wealth and grow your investments, so you should avoid them at all costs. Below are some of them

• Liquidity 

You can withdraw the money before the maturity period with all the interest gained. Just like any other type of savings accounts, banks also levy penal interests if you try withdrawing before your fixed deposit matures. These penalties can go up to 1% per month or even more. Depending on when you invest and how old your FD is when you take it out.

• Inflation

While saving money can be important at all times, choosing a traditional FD isn’t a good way to do so right now. The yields are at such levels that they barely give any returns at all due to inflation rates.

• Low returns 

FDs have not seen similar growth in terms of interest. Most of these deposits offer annual yields between 5-7%. Compare these figures with what you get on unit funds for 7-9% returns or risk-free government bonds, which offer between 8%-12%, and it becomes clear why investing in fixed deposits may not be wise at present.

Things to know

Fixed deposits are not worst at all. But they are not a great scheme for investing the money over a long period of time. If your goals are for short terms like 1-2 years and you need a quick emergency fund then you can put your money into relevant fixed deposit scheme.

But if you’re looking for a long term safe investment, there are plenty of ways to rather than fixed deposits. For example, if you’re saving for a longer-term goal like retirement, consider opening a mutual fund or unit trusts.

In case you are willing to grow your money overtime to beat the inflation and want to get into the real investing then you have to jump into stocks, bonds, commodities, crypto and mutual funds like growth, equity. Remember these always carryout heavy risks, which you can lose the money.

But overall in long time frame cases like 5-10 years they always give high returns which have huge potential to beat the inflation and compound the money.

( If you wish to Watch a cool video explaining this topic – CLICK HERE )

Author’s disclaimer

So as the conclusion the reason why I’m not a huge fan of fixed deposit are my finance goals and needs are after 5-10 years of time. So choosing fixed deposits is not a wise decision to grow the money. Because the many actually losing value over time in FD’s.

But if your goals are less than 5 years of time and you need your money to be 100% safe then choosing fixed deposits would be a wise decision over high volatile stocks and bonds. (Even though you can try fixed income unit trusts for low time frames)

I strongly believe the main reason most educated people still use fixed deposits for long time frames like 10years is because of its safety assurance.  If you want to play the safe game without taking a little risk then investments are not a good option for you. You have to struck with fixed deposits and lose your money over time by inflation.

Because the average fixed deposits rates in sri lanka is nearly 6-7% and the inflation is over 14% at the time I’m writing this article. So choose your decision wisely.