Fixed Deposits vs. Government Bonds: Which is Safer?

When it comes to investing our hard-earned money, safety is always a top priority. We want our investments to grow steadily without the risk of losing the principal amount. Two popular investment options that offer stability are fixed deposits (FDs) and government bonds. In this blog, we will conduct a comparative analysis of fixed deposits vs. government bonds to determine which option is safer.

Fixed Deposits: A Reliable Investment Option

Let's start by understanding fixed deposits, which are offered by banks and non-banking financial companies (NBFCs). When you invest in an FD, you deposit a certain sum of money for a specific period at a fixed interest rate. At the end of the chosen period, you will receive principal amount and the interest accrued.

What makes FDs unique?

1. Assured returns: FDs offer a guaranteed return on your investment, making them a popular choice among risk-averse investors.
2. Flexible tenure: FDs come with various tenures ranging from 7 days to 10 years, allowing you to choose the duration that suits your financial goals.
3. Regular income: You can opt for monthly, quarterly, or annual interest payouts, providing you with a steady income stream.

Are All Types of Fixed Deposits Safe?

When you talk of fixed deposits, you must distinguish between bank fixed deposits and those offered by Non Banking Finance Companies (NBFCs). Bank deposits are safe, especially as we have not heard of any defaults from private banks, government banks or small finance banks on their deposits. 

Government Bonds: A Secure Investment Avenue

Now let's turn our attention to government bonds, also known as government securities. These bonds are issued by the central and state governments to raise funds for developmental activities. Investing in government bonds means lending money to the government for a fixed period at a predetermined interest rate.

Why are government bonds considered safe?

1. Backed by the government: Government bonds are backed by the sovereign power of the country, making them among the safe investment options. 
2. Credit risk is minimal: Since governments have the power to tax their citizens, the chances of default on bond payments are very low.
3. Regular interest payments: Government bonds provide regular interest payments, which can be a dependable source of income.

Comparing fixed deposits vs. government bonds: Which is safer?

Both Bank fixed deposits and government bonds offer safety and stability. On the other hand, as mentioned earlier, NBFC Fixed Deposits may pose an element of risk. However, there are a few key differences as well to consider:

To make an informed decision between fixed deposits and government bonds, it's essential to consider your financial goals, risk appetite, and investment horizon. You would need to do some comparative analysis before investing. If you're looking for higher returns over a longer period, government bonds might be a better option. On the other hand, if you prefer liquidity and shorter investment tenures, FDs can be more suitable.