Investment Planning: Want higher interest rates than FDs? Try out these options

The recent hikes in interest rates for Fixed Deposits (FDs) have impressed investors and more people have been considering FD investments due to secured returns. Currently, most banks offer up to 7.5 per cent returns on FDs of different tenures. The investors who look for a risk-averse investment option have traditionally been choosing FDs over other instruments.  

However, during investment planning, one should consider that there are several investment options that provide better returns compared to FDs. These investment options also come with moderate risk compared to FDs.

Here's a list of four investment options that are safe like FDs but offer relatively higher returns. While all FDs are not eligible for tax deductions, these options could also offer tax benefits.

National Savings Certificate

National Savings Certificate (NCS) has a lock-in period of five years, much higher than short-term FDs. However, currently it offers a higher rate of return at 7.7 per cent (for the July-September 2023 quarter). Investments in this scheme can be made by a single investor, jointly or on a minor's behalf. This scheme also enables you to avail tax benefits under the Section 80C of the Income Tax Act, 1961. However, the interest isn't paid to you but it is reinvested.  

Post Office Time Deposit

The Post Office Time Deposit (POTD) serves as a great alternative to FDs for those who want a secure return. They offer lock-in periods of 1, 2, 3, and 5 years. Moreover, it is even safer than FDs as the amount invested and the interest accrued are backed by sovereign guarantee. Currently, 5-year POTD investment offers 7.5 per cent returns. You can make only one deposit in one account but there's an option to create multiple POTD accounts in a post office. The deposits should be made in multiples of Rs 200 and the minimum deposit amount stands at Rs 200.

RBI Floating Rate Savings Bonds

The interest rate for the RBI Floating Rate Savings Bonds is based on the National Savings Certificate (NSC). The RBI floating rate savings bonds operate on a spread of 0.35% above the interest rate of NSC. Hence, every change in NSC interest rates would affect the rates for RBI Floating Savings Bonds. Considering the current NSC interest rate of 7.7 per cent, the interest rate for RBI Floating Rate Savings Bonds can go up to 8.05 per cent. The interest accrued on these investments is paid on a half-yearly basis,  in January and July  each year.

National Pension System (NPS)

The National Pension System is a government-backed retirement savings scheme, which is managed by Pension Fund Regulatory and Development Authority (PFRDA). Based on the recent trends, the NPS investments offer up to 12 per cent return per annum. It’s important to note that, compared to bank FDs the NPS investments are linked to market fluctuations. However, the investors can choose their asset allocation to mitigate the risk. The NPS investments are also eligible for tax benefits under Section 80CCD(1B) over and above the Section 80C limit. Unlike FDs, the NPS investment also allows partial withdrawal under certain circumstances.