Gold Bonds vs FD: Key Considerations for Investors
As you embark on your financial journey, you will find two distinct investment avenues Sovereign Gold Bonds (SGBs) and Fixed Deposits (FDs). Each has its own set of characteristics and considerations. Let’s take a look at both of them as investment options:
Getting Started with Fixed Deposits
Fixed deposits are where investors deposit a lump sum with a bank for a fixed period. During this time, the deposited amount earns interest at a higher rate compared to a regular savings account. When you invest in an FD, the principal amount you deposit is secured by the bank or financial institution for the duration of the investment term. This means that regardless of fluctuations in the market or changes in interest rates, you are guaranteed to receive back your initial investment amount at the end of the FD term. Moreover, the interest rate offered by the bank or institution is predetermined and remains fixed throughout the term of the FD. Breaking the FD before maturity may result in a penalty charge.
FD vs SGB: Which is Better for you?
- Affordable: Both FDs and sovereign gold bonds are affordable investment options. While FDs can be opened with a minimum deposit requirement of just Rs. 5,000, sovereign gold bonds start from just one gram.
- Returns: Sovereign gold bonds offer a fixed interest rate of 2.5%, paid semi-annually, throughout the entire 8-year term. The invested amount earns interest at a fixed rate for the entire tenure. Senior citizens enjoy higher interest rates. The return on sovereign gold bonds depends on the prevailing market price of gold.
- Taxation: Interest earned on FDs is subject to taxation, with TDS applicable. While capital appreciation on SGBs is tax-exempt, earned interest is taxable.
- Security: In the event a bank declares bankruptcy, FDs are protected only up to a maximum of Rs. 5 lakh per depositor. On the other hand, there is no such thing with gold bonds.