How much do FDs earn across the world?

Let’s be honest, FDs are far from a groundbreaking concept. With records of similar offerings tracing back as far as 17th century BCE, fixed deposits have been around practically forever.

And while it may not be as obvious, this holds true in practically every part of the world. They’re known by different names; CDs (Certificate of Deposit), Term Deposits, Deposit with Agreed Maturity, etc., but are essentially the same thing.

This begs the question; could you invest in FDs in another part of the world?

With the staggering variety of offerings in the financial space, someone must have created a way to do this, right? Maybe so. But first, let’s check if you would even want to invest in FDs outside of India!

Global FD Rates

Here’s what the average FD rates look like for a 12-month tenure in a few different countries (based on the latest available data as of Nov 2023).

This looks fantastic! Sign me up, right?

But hold on, this is not an accurate representation of the whole picture. Looking at FD rates in a vacuum doesn’t make sense - we need more context.

For instance, doesn’t it seem suspicious that a bank would offer you more than your principal amount, just in interest, in just one year? (Laxmi Chit Fund :P) And why would someone invest in an FD where interest rates are negative? How and why are negative interest rates even a thing?!

To answer some of those questions, here’s a more complete picture of things:

Inflation Rate here represents the Consumer Price Index, as calculated by the IMF

The effective deposit rate in the above table is a much better representation of what your gains will look like.

And it doesn’t end there. There’s a bunch of other factors to consider when investing in another country, even if it’s something as simple as a fixed deposit - currency exchange rates, legal and regulatory frameworks, tax implications, access to liquidity, even the geo-political situation in a country and many more.

For example, you might think Argentina is a good place to invest, but hyperinflation is something highly unpredictable, and the whole point of an FD is to get stable, assured returns.

As we can see, India offers some of the best effective returns, and this is keeping an average of 7.5% p.a. interest in mind. With interest rates as high as 9.15%, India is undeniably the safest and best place to invest in FDs!

Explore best FD rates

You’re probably thinking: OK, maybe investing in foreign FDs is not the best idea right now. And I get that FD rates need to keep up with inflation, but why are even the effective deposit rates so different?

That’s where we see the not-so-subtle effect central bank policies have on interest rates, and by extension, the financial decisions made by citizens. In a previous edition, we saw how the repo rate affects bank FD rates.

Today, let’s look into the reason behind repo rate fluctuations, i.e., the implementation of central banks’ fiscal policies, usually aimed at either stabilizing or stimulating the economy.

Why do Repo rates change?

Let’s look at it from a causal perspective.

Say the repo rate is increased. What does that mean for the country?

We can see how changes in repo rate set off a domino effect.

Step 1- Liquid money becomes more expensive, both for the banks (who directly borrow money from the central bank at the increased repo rate), and for consumers. Consumers see this expense in the form of opportunity cost, or missing out on potential gains if they simply hold the money in a salary account or a savings account (since banks tend to increase FD rates when repo rates are increased).

Step 2- Consumers are incentivized to park more of their funds into term-deposits, or other long-term assets (which usually offer better returns than short-term assets) and reduce short-term spending.

Step 3- Reduced spending results in an economic cooldown and helps keep inflation under control.

(This is something Argentina is trying hard to do, but hyperinflation is rather difficult to control.)

The opposite happens when the repo rate is decreased, stimulating economic activity to combat recessionary pressure.

Simply put, by offering money at lower rates, people are more inclined to borrow and spend money, promoting the economy. Japan is an extreme example of the latter, where FD rates are negative, strongly encouraging people to spend money.

Another, not-so-obvious reason banks may increase repo rates is to prevent the depreciation of currency!

Here’s how that works - by increasing the repo rate, foreign investors are attracted by the higher returns offered by banks as a result.

But to make the most of the higher returns, foreign investors need domestic currency. This increases the demand for domestic currency as more and more people exchange their own currency for it.

Since supply is fixed, and demand increases, the domestic currency naturally rises in value. This supports domestic currency and keeps it from depreciating in value.

As we have seen, something as simple as FD rates can help track the efficacy of national policies set by central banks. And just like central banks shape financial landscapes, our app empowers you to shape your financial future.

With our unique referral program, you too can take advantage of the domino effect to maximize your gains!

Refer and Earn

Hopefully, the next time you see a seemingly mundane financial product, you’ll be curious about what goes into it ;)

In today’s edition, we’ve shown you how FD rates may not be as simple as they seem. At Stable Money, we’re going to keep you informed and ensure that you make the best investment decisions.

Best,

Team Stable Money