Fixed deposits hard-hit by rising inflation

Traditionally, Fixed Deposits have been a favorite for small-time investors planning their savings for future security. The elusive interest rate on this investment plan has had many takers out of the huge banking customer-base. But today, loyal fixed depositors have a reason to worry as the interest rate might not be enough to fulfill their future plans.

The culprit in this regard is the rising inflation coupled with back-breaking taxation, eating-away not only at one's pocket, but also crippling the returns from the Fixed Deposits.

The interest rate offered by most banks on Fixed Deposits is somewhere around 8-8.5% for regular citizens and around or over the 9% mark for senior citizens. But despite the flattering rate of interest, the savings' return will not be in a position to match-up with the growing trends of inflation and taxation.

The inflation rate is on a rising curve with the worst-ever trend noted since November 2004. India's inflation rate has hit a whopping 7.83%, ascending up by 0.22% in a week's time. This is badly affecting the financial plans of the major as well as of the small investors.

The tax rate levied on the consumers has also seen a considerable increase on almost all the commodities and services. Combined with growing inflation rate, high taxation calls for better investment plans for your savings than the good-old Fixed deposits.

The current savings' return over the Fixed deposits is nowhere near the rapidly growing inflation and taxation rate. To counter this, interest rate offered by banks need to be at least exceeding the 10% mark.

Lastly, it is advisable that the small-time investors rethink their fixed deposits schemes. They can either break their FDs if the interest rate is around 5-6%, or stick to them for interest rates above 9%. Investors planning for a fixed deposit need to play a patient game. They need to wait for a more feasible time unless better interest rates for Fixed deposits are offered. Until then, the focus can be shifted to other investment areas like debt funds etc.