Deposits and small savings
The safest places to put money — and what safety actually costs you.
8 of 8 chapters published
Chapters
Beginner
- What a deposit is and who guarantees itA deposit is an unsecured loan you make to a bank. What protects you is not the bank's balance sheet but a statutory insurance scheme — and it covers ₹5 lakh per depositor per bank, principal and interest together.
- Fixed depositsThe rate is not negotiable, it may differ only for reasons the RBI permits, and breaking a deposit early does not cost you a penalty on your contracted rate — it replaces the contracted rate altogether.
- Recurring depositsYou pay the headline rate but you do not earn it on the full amount, because each instalment is invested for a shorter time than the one before. The maturity value is right; the intuition about it is wrong.
Intermediate
- PPF, the rules that bindFifteen years, ₹1.5 lakh a year, a rate reset quarterly by the government, and protection from attachment by a court. The constraints are the product — they are what makes it work and what makes it unsuitable for some purposes.
- Sukanya Samriddhi, NSC and the post officeNine small savings schemes, each with a different maturity, limit and purpose. Read as a set they are not competing products but a menu organised by how long you can give up the money and who it is for.
- The EEE questionThree separate stages can each be taxed or exempt, and a product's label tells you less than working out which of the three it actually gets. The section numbers everyone quotes belong to a repealed Act.
Advanced
- Laddering and reinvestment riskA deposit removes price risk and keeps the risk that you will have to reinvest at a worse rate. A ladder does not eliminate that — it spreads it, which is a different and more honest claim.
- When a deposit quietly losesTax is charged on the nominal return and inflation then applies to what is left. In that order, a deposit paying more than inflation can still leave you with less purchasing power than you started with.