Now, it seems that a combination of global and domestic macroeconomic factors is driving the winds of change among Indian investors. This has prompted the Reserve Bank of India (RBI) to increasingly voice its concerns over slower deposit growth compared to credit growth.
Credit growth, or the amount collectively being borrowed, deposits growth, representing the total amount invested in instruments like fixed deposits (FDs), hit a decade high, RBI data showed .
This has raised concerns over the ability of banks to sustainably meet the growing demand for credit as they rely on deposits as a cheap source of funds for lending. And while bankers are debating its impact on the banking system, the question for investors is, are we witnessing the beginning of a decline in preference for FDs?
Mutual funds, the last nail in the coffin of FDs?
Preference for fixed deposits among millennial investors is, for the first time, trumped by higher interest
mutual funds, as per the 2022 survey conducted by BankBazaar. Data collated from the Reserve Bank of India shows that household savings held in mutual funds have increased by 160% in the past three years, compared to 21% for deposits.
While these may indicate a changing trend, deposits still rule when it comes to the total investment amount. Another paradoxical finding from the survey is that the most preferred instrument by Millennials were savings accounts.
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While the underlying reasons may differ, it shows that despite rising inflation putting pressure on household savings, Indians prioritize safety when it comes to investment. But instead of settling for lower FD rates, there can be a better way to take advantage of the ongoing rise in interest rates.
a better way to deposit
a spotlight
Despite inflation easing to a three-month low of 6.77% in October, the central bank is expected to continue hiking policy rates. This means that deposit rates have not yet peaked, and investors investing in long-term FDs are likely to be left out.
Money management apps like Fi Money offer
smart deposit
(SD) which are ideal for short term investment goals. SDs come with higher interest rates than savings accounts while providing more liquidity than FDs.
The Fi Money app allows users to easily set up goal-based SDs for short-term objectives such as a year-end trip to Goa or saving up for the latest iPhone. Investors can set up by planning for future expenses
Rules to automate savings
in various goal-based SDs instead of depositing the money in a savings account.
Another instrument worth considering that combines the benefits of higher interest rates is greater liquidity.
peer-to-peer investing
, Fi Jump peer-to-peer investment platform provides instant withdrawals as well as up to 9% interest by enabling investors to lend money directly to borrowers.
While this may be only the beginning of changing investor preferences, persistently high inflation and tighter financial conditions may prompt more and more Indians to look for alternatives to FDs. And while this trend plays out, the Fi Money app can help make more informed financial decisions, both long and short term.