Last Updated on March 15, 2024 by Tayyaba Shafqat

Fixed deposit in India have been the first choice of retail investors. There are many reasons for it. The major reason is lack of awareness about the alternatives of Fixed Deposits yielding relatively better returns. Fixed Deposits (FDs) are known to offer several advantages. Along with the many benefits it also has certain limitation, the major being capital protection allowed only to a limit of rupee five lakh through the medium of insurance.

The rate of interest offered on FDs by banks vary and hence make sure you compare the interest rate on FDs before closing the deal. The return depends on numerous factors. The key factors include maturity duration, bank, amount, and more.

How can I earn more than FD?

There are many investment instruments that are known to offer return more than FD. The need is to know about them. There are several sources available online and offline that can help you expand your knowledge. For the investor looking for the options to earn more than FD, bonds can be a better choice. It is known to provide irresistible features. Unlike other investment instruments, bonds do have their own limitation. Hence, make sure you take into consideration its pros and cons.

If you are also looking answer to the most common question – How can I earn more than FD? read the content carefully. You can find multiple option in the fixed income security. One of the popular options preferred by institutional and retail investors in the country is bonds. There are a range of bonds categorised on different basis. The most common bonds include government bonds, corporate bonds, green bonds, zero coupon bonds, convertible bonds, tax free bonds, PSU bonds, and more. The coupon rate offered on the bonds vary depending on the maturity, demand in the market, credit rating, and the amount invested. Thus, your decision to invest in bonds can help you earn more than fixed deposits (FDs) in India.

Below is the Annual FD Interest Rate of Leading Banks and NBFCs in India

(The below information is based on investment below Rs. 2 crores for tenures ranging from 7 days to 10 years as of May 2022)

Bank NameFor CitizensFor Senior Citizens
Bank of Baroda2.80% – 5.35%3.30% – 6.35%
HDFC Bank2.50% – 5.60%3.00% – 6.35%
Axis Bank2.50% – 5.75%2.50% – 6.50%
Shriram City Union FinanceUp to 7.75%Up to 8.05%
State Bank of India2.90% – 5.50%3.40% – 6.30%
LIC Housing Finance5.15% – 6.00%5.40% – 6.25%

Note: The rate of interest is subject to change, so investors are requested to check the current rates before choosing the invest in a bank or with NBFCs.

How are bonds better than FD?

Bonds and FDs, both have their own pros and cons. Bonds is better than FD in many terms. It provides tax benefits, comparatively high returns, and capital protection. Bonds are known to provide returns ranging from 5% to 14% subject to certain terms and conditions. Bonds specifically government bonds are considered the most secure investment option. Most of the retail investors in India prefer to invest in government bonds issued from time to time because of the great security it provides. It also comes with sovereign guarantee that make it safer. It also provides total capital protection in comparison to the 5 lakhs guarantee in FDs through the medium of insurance.

Advantages with Bonds

  •  Relatively better returns on your investment
  • Liquidity help you buy or sell bonds in the secondary market as and when you are in the need of cash
  •  Protection of capital in FDs are limited to certain limit but in case of government bonds, a bondholder gets the protection of total principal invested. *

FDs Vs Bonds Quick Facts

  •  Your investment in bonds under section 80 C have no special deduction. Interest income on tax free bonds attract no tax. It is issued by institutions like PFC, REC, NTPC, IREDA, HUDCO, IRFC, NHAI, and others.
  •  Investment in fixed deposits is not backed by assets and hence the safety of capital decreases. In the case of bonds if a company goes bankrupt, bondholders will be the first to receive their due payments.
  •  Banks (private and nationalised), NBFCs and post offices facilitate fixed deposits with different maturities.
  •  Bonds are issued by private companies, government state and central, municipalities, and others.

Ratings by ICRA Limited

Category of RatingExplanation
AAAHighest safety/Lowest credit risk
AAHigh safety/Very low credit risk
AAdequate safety/low credit risk
BBBModerate safety
BBModerate risk of default
BHigh risk of default
CVery high risk of default
DDefaulted or expected to be in default

The Alternatives of Fixed Deposits

The fact that no one can deny is – higher the risk higher is the gain, lower the risk less is the gain. So, if you are capable of taking risk, you can expect more than expected returns on your investment. The best Alternatives of Fixed Deposits in India is none other than bonds that is available with excellent features. Bonds unlike FDs are a fixed income security with remarkable advantages. Also, there are a range of bonds that you can opt for your investment. Certain bonds can help you fulfil your various financial objectives in your life.

If you wish to earn more return and have peace of mind, Alternatives of Fixed Deposits bonds is an excellent choice for you.

The Different Types of Government Securities in India?

  • State Development Loans
  • Zero-Coupon Bonds
  • Treasury Bills.
  • Cash Management Bills (CMBs)
  • Dated Government Securities
  • Capital Indexed Bonds
  • Floating Rate Bonds
  • Treasury Inflation-Protected Securities (TIPS)

Example of a government bond – you by 10-year government bonds worth Rs. 10,000 with a 6% annual coupon. The government would pay you 6% of your capital 10,000 each year. You will earn Rs. 600 annually and at the end date of maturity you would get back your actual principal Rs. 10,000. Investing in government bonds can not only help you earn better returns on your investment but also safeguard your capital.

Types of Corporate Bonds

Corporate bonds are broadly classified into five types.

1. Public utilities

2. Transportations

3. Industrials

4. Banks and finance companies

5. International issues

Features of Corporate Bonds

The Top Corporate bonds in India

  • Nippon India Corporate Bond Fund Direct Plan Growth Plan
  • ICICI Prudential Corporate Bond Fund Direct Plan Growth
  • Axis Corporate Debt Fund Direct Growth
  • PGIM India Corporate Bond Fund Direct Plan Growth
  • Kotak Corporate Bond-Direct Plan-Growth Option
  • Aditya Birla Sun Life Corporate Bond Fund Direct Plan Growth

Thus, there are multiple alternatives of Fixed Deposits in the country. Bonds can be an option for the safe investment better in comparison to fixed deposits. You can choose the option based on your needs. There are certain essentials that one should consider enjoying peace of mind along with good interest income. You can also consider seeking expert advice for secure investing.