For those looking to grow their wealth conservatively, fixed deposits (FDs) have long been widespread due to their stability and guaranteed returns. However, if your primary goal is to double your money in a decade, FDs might not be the ideal investment option. Let’s explore why and look at examples of the current interest rates offered by prominent banks.
How Fixed Deposits Work
Fixed deposits are investment vehicles in which an investor locks a lump sum amount for a specific tenure in exchange for interest paid by the bank at regular intervals. The interest rate offered depends on the tenure of the FD and the bank’s policies. For example, the State Bank of India (SBI) offers 6.5% interest on a 10-year FD, while for a tenure of 3 to 5 years, the rate is slightly higher at 6.75%.
Typically, interest rates for FDs are fixed, meaning they do not change over the investment period. Therefore, the interest rate and deposit duration are the primary determinant of how much you earn from an FD.
Why FDs Can’t Double Your Money in 10 Years
To understand why FDs fail to double your money in a reasonable time, let’s look at the rate of return needed to achieve this goal. To double your investment, you need to earn a return of approximately 14.87% annually over 5 years, 10.41% over 7 years, or 7.18% over 10 years.
Unfortunately, none of the prominent banks in India currently offer these high interest rates on fixed deposits. Let’s break down the returns provided by major banks:
Interest Rates on 10-Year Fixed Deposits
- State Bank of India (SBI): 6.5% per annum
- If you invest ₹1 lakh, your returns after 10 years would be ₹1,13000 (approximately), falling short of doubling your money.
- HDFC Bank: 7% per annum
- An investment of ₹1 lakh will grow to ₹1.96 lakh in 10 years. However, senior citizens benefit from a slightly higher return of 7.5%, which will turn ₹1 lakh into ₹2.06 lakh, barely doubling the original investment.
- ICICI Bank: 6.9% per annum
- A ₹1 lakh investment in an ICICI FD will grow to ₹1.94 lakh in 10 years.
- Kotak Mahindra Bank: 6.2% per annum
- With this interest rate, ₹1 lakh will become ₹1.82 lakh over 10 years.
- Bank of Baroda: 6.25% per annum
- This rate means ₹1 lakh will become ₹1.83 lakh after 10 years.
- Punjab National Bank (PNB): 6.5% per annum
- With PNB’s interest rate, ₹1 lakh will become ₹1.87 lakh in 10 years.
As we can see from the above examples, even the best-performing FDs—such as those from HDFC Bank or ICICI Bank—fail to double your money in 10 years. They offer returns close to ₹1.90 lakh but don’t quite reach the ₹2 lakh milestone for regular citizens, and the return would be just shy of doubling the initial investment.
Senior Citizens Get Higher Returns
It is worth mentioning that senior citizens are often eligible for higher FD interest rates, with a 0.25% to 0.75% higher rate than that offered to regular customers. While this can make a difference, it doesn’t lead to doubling the investment in 10 years.
For example:
- HDFC Bank’s 7.5% return for senior citizens will turn ₹1 lakh into ₹2.06 lakh in 10 years.
- SBI’s 6.75% for senior citizens will grow ₹1 lakh to ₹1.87 lakh, but not quite double it.
Can Fixed Deposits Help You Double Your Money?
Unfortunately, fixed deposits are not designed for wealth creation in the same way as equity investments or mutual funds. While they provide safety and guaranteed returns, the interest rates offered by banks typically do not allow your money to grow fast enough to double it in 10 years.
FDs are best suited for conservative investors who prioritize security over high returns. Suppose your goal is wealth accumulation, especially to double your money. In that case, you may need to explore higher-risk options such as mutual funds, stocks, or equity-linked savings schemes (ELSS), which have the potential to generate much higher returns over time.
Conclusion
While fixed deposits are safe and provide predictable returns, they fall short when aggressively growing wealth in the long term. As we have seen, even the highest FD interest rates (around 7% to 7.5%) will not double your money in 10 years. Exploring more dynamic investment options is crucial for those aiming for better wealth creation.s