6 Alternatives To Fixed Deposits Amid Falling Interest Rates

The coronavirus outbreak and subsequent movement restrictions have added pressure to an already ailing Indian economy. As economists project a contraction in the GDP (gross domestic product) for the current financial year, the Reserve Bank of India (RBI) will continue to keep repo rates lower, until economic growth gathers pace.

Repo rate is the rate at which the RBI lends money to commercial banks, in case they have a shortfall of funds. This rate is decided by the Monetary Planning Committee, headed by RBI's governor, based on the economic condition of India. When the economy is weaker, people are encouraged to spend using cheaper loans so as to push economic activity.

On the other hand, if the economy is doing well and inflation is rising from higher demand for products, the repo rate is increased so as to limit cash flow in the economy, encourage more people to save and control inflation.

As a result, interest rates on fixed deposits or even savings bank accounts are likely to remain low in the months to come.

Furthermore, uncertainty at the end of the pandemic is also keeping markets volatile.

How will lower interest rates affect investments?

A decline in interest rates will affect savings as well as investments. Some savers, for example senior citizens, depend on fixed deposit interest rates for their income in their retirement years. Even those looking to beat inflation will face challenges due to falling returns on deposits.

With the risk involved in equity investments and low-interest rates on FD, investors have been looking at an alternative to make higher returns.

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