Why Most Indians Have Only FDs and Why That’s a Problem

On 28 August 2025, the Reserve Bank of India (RBI) released its “Handbook of Statistics on the Indian Economy 2025”. This report offers detailed insights into how Indian households save and invest. Table 47 of this handbook shows that savings deposits with scheduled commercial banks increased from ₹49,74,715 crore in 2020–21 to ₹64,77,320 crore in 2024–25. This represents an impressive growth of about 30.2% during the 5-year period. 

Interpretation? Fixed deposits continue to be one of the most preferred investment options for Indians. The assurance of pre-determined returns and complete insulation from market volatility make them attractive across age groups. 

But are FDs enough? Can they outpace inflation and protect your real purchasing power? The answer could be a “NO”! Studies show that nowadays a growing number of investors are moving beyond FDs and have started exploring market-linked instruments. 

But why? Read this article to check out the three major problems you may face with FD-only investments. 

Have an FD-Dominant Portfolio? 3 Major Risks You Might Be Exposed To in 2026

FD-only investors depend on a single type of financial instrument, which creates “concentration risk”. Note that different assets perform differently under changing economic conditions. For example, 

• Equities benefit from economic growth

and

• Bonds benefit from interest rate changes

Now, such investors miss gains during economic expansion, rising markets, or favourable bond cycles. Additionally, some more risks investors with an FD-dominated portfolio may face are:

1. FDs May Not Keep Pace With Rising Inflation

A fixed deposit may protect your capital from market risk, but it does not offer protection from inflation. As per industry understanding, when inflation exceeds your FD rate, your purchasing power decreases. 

Want to see how? Let’s understand how inflation reduces the real value of your FD returns through a hypothetical example. Assume you invest ₹1,00,000 in a cumulative FD at 6% interest for 5 years, and the inflation remains at 6.5%.

Now, observe how your real gain/loss changes over the FD term:

Your FD grows from ₹1,00,000 to ₹1,33,823 after 5 years. In nominal terms, it is a gain of ₹33,823 (₹1,33,823 – ₹1,00,000). However, after adjusting for 6.5% inflation, the real value of your maturity amount is only ₹97,707 in today’s terms. This means your money has lost ₹2,293 in purchasing power, even though the FD balance increased.

The result? Your savings grow numerically, but you may fail to preserve your lifestyle or future spending capacity.

2. FDs May Offer Comparatively Lower Returns

Note that FDs are designed to provide capital protection and predictable income. Their returns do not change based on how the economy or businesses perform. Due to a lack of market exposure, FD investors do not benefit from:

• Rising corporate profits
• Expanding industries
• Increasing domestic market demand

In contrast, market-linked instruments such as bonds and equities participate in economic expansion. When businesses grow and earnings increase, these instruments may offer comparatively higher returns than FDs. 

For more clarity, let’s see how much ₹1,00,000 invested for 5 years across different instruments can accumulate (assuming annual compounding):

So, you can observe that the SBI FD grows to ₹1,34,096 and generates a gain of about ₹34,096. In contrast, an AAA-rated bond grows to ₹1,43,891. But if we talk about the riskier options: 

• The NIFTY 50 grows the same ₹1,00,000 to ₹1,85,387 and creates more than 2.5 times the wealth created by the FD. 
• High-yield bonds also delivered a similar outcome and reached ₹1,90,774.

Thus, investors relying only on FDs may preserve their savings, but they may fall behind in terms of long-term financial growth and goal achievement.

3. Taxation Reduces Your Actual FD Returns

FD interest is fully taxable as per your income tax slab. This directly reduces your real earnings. For example, 

• Assume that your FD pays 6% and you fall in the 30% tax bracket.
• Now, your post-tax return drops roughly to about 4.2% [6% x (1 – 30%)]. 

In contrast, some market-linked instruments may offer more favourable tax treatment, which improves your net returns. These products could be:

• The Unit Linked Insurance Plans (ULIPs) combine investment with insurance and provide exposure to equity and debt markets. 
• Their maturity proceeds are usually tax-free under Section 10(10D) of the Income Tax Act, 1961. 
• Similarly, tax-free bonds may offer interest that is fully exempt from income tax.
• This could make their “effective return” higher than taxable instruments (even if the advertised coupon rate appears similar). 

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In Summary, FDs May Not Keep Pace With Inflation and Offer Lower Post-Tax Returns in 2026

So now you know the various risks you are exposed to when you have an FD-dominant portfolio. Since FDs are non-market-linked instruments, they usually offer lower returns compared to financial products like bonds and equities, which benefit from economic growth and market participation.

Additionally, FDs may struggle to keep pace with inflation, and taxation further reduces their effective returns (particularly for investors in higher tax brackets). Gradually, this limits both “real wealth creation” and income growth.

So, if you are looking to diversify your FD-heavy portfolio, bonds may be considered. They could offer a better balance between stability and return potential. To check out multiple bond options, you may visit platforms like GoldenPi, a SEBI-registered debt broker and OBPP (Online Bond Platform Provider) license holder. 

Also, investments can be made online in 3 easy steps. First, complete your KYC, then browse multiple bonds, and lastly make the payment. The purchase bonds will be credited directly to your linked demat account. 

FAQs

1. What is the reinvestment risk associated with FDs?

FD returns are pre-determined only for the current term. When the FD matures, you must reinvest at the prevailing interest rate. Thus, if your FD matures in a falling interest rate environment, your future income could decline. 

2. How do bonds differ from FDs?

Both FDs and bonds offer pre-determined income. However, they differ in terms of liquidity and return potential. FDs are issued by banks and are not traded in the secondary market. In contrast, bonds are issued by governments or companies and can be traded in the secondary market before maturity. Depending on credit quality, bonds may also offer comparatively higher returns.

3. What is the relationship between the assigned credit rating and the coupon rate offered by a bond?

As per industry understanding, both are inversely related. Usually, higher-rated bonds (such as AAA or AA-rated) offer lower coupon rates because they carry lower risk. In contrast, lower-rated bonds offer higher interest rates to compensate investors for taking on additional credit risk.

4. What is the latest interest rate offered by bonds in 2026?

In 2026, you can earn up to 15% p.a. with corporate bonds. To check out multiple options, you may visit GoldenPi. Here, you can explore highly-rated bonds, high-yield bonds, state government guaranteed bonds, and more.

Citations

• Handbook of Statistics on Indian Economy – Reserve Bank of India
• Publications – Reserve Bank of India
• The end of the FD era? Why Indian families are swapping 7% FDs for market risk – Money Insights News | The Financial Express

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Disclaimer:

This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.

Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.

About GoldenPi Expert

With over 15 years of experience across fixed income and debt markets, he brings deep domain expertise along with a strong focus on investor education and transparency. An alumnus of IIT Kharagpur and IIM Calcutta, his views are personal and should not be considered investment advice.

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