FD vs Real Estate Investment

For generations, Indians have strongly believed in saving their income and investing in safer modes of investments such as fixed deposits (FDs) and real estate. Undoubtedly, both of these options are deeply rooted in our culture. FDs are associated with a safe and guaranteed return, whereas real estate is associated with building long-term wealth along with a sense of pride and social status for its owner. Income on FDs and real estates are often impacted by inflation, interest rates, and government taxes. In this article, we will dig deeper to find out - are these worth investing in today and how are they compared with each other?

Fixed Deposits (FDs) as an Investment

As a conservative Indian who doesn’t want to take much risk, FDs are the safest form of investment to earn a fixed guaranteed return on their capital without worrying about market fluctuations. FDs appeal most to senior citizens or retired persons who don’t want to lose their capital in the later part of their life.

As of 2025, most large Indian banks are offering interest rates of 6% to 6.8% per year, with 0.5% more interest to senior citizens. You can use a FD calculator site. For example:

For SBI Bank, the existing interest rate (for the general public) for the tenure of at least 1 year is 6.25%. For the tenure above 2 years, the interest rate is 6.45%.HDFC, the largest private bank in India, offers an interest rate almost the same as SBI in the under 1 year tenure, which is 6.25%. However, when you choose the tenure between 18 months to 21 months, you get an even higher interest rate of up to 6.60%.

ICICI bank offers an interest rate of 6.25% on the FD with a tenure of 1 month to 18 months. Above the completion of 2 years, they offer interest rates of 6.60% to the general public and 7.1% to senior citizens.

The interest rates offered by NBFCs (non-banking financial companies) can be slightly higher than the traditional banks. Some popular NBFCs are ICICI Home Finance, Bajaj Finserv, Muthoot Capital, and Shriram Finance, Sundram Finance. These NBFCs offer interest rates starting from 6.5% to up to 9.1%.

The return on investment from FDs looks reasonable, but when you factor in the inflation of 5% to 6% per year, the real return looks very small. On top of that, the income made from FDs is subject to taxation, which further diminishes the return. These factors make FDs a less lucrative choice of investment for the young investors, despite the promise of a guaranteed return.

Real Estate as an Investment

Real estate is another long-term mode of investment, which offers two income streams: one through capital appreciation (the value of property rising over time) and the other through rental income. In comparison to FDs, real estate investment is illiquid and requires heavy transactions. Real estate prices also vary widely depending on the city, area, and housing segments.

According to a report from JLL Property, the price of residential property in India has risen by 6%-8% in recent years, with premium properties prices soaring further in big cities as 62% properties sold in H12025 (first half of year 2025) are above INR 1 Cr. The annual rental yield earned in big cities stood at 3%-5%. Putting together a property owner in such cities can easily see an annual return in the range of 8% to 12%, if other costs like property maintenance and taxes are ignored.

Comparison of Returns

Let's compare the return generated from Fixed Deposits with Real Estate with an example.

FDs: A sum of ₹10 lakh placed in a 5-year FD at 6.5% grows to ₹13.88 lakh without tax. After tax deduction, it would come to around 12.6 %.

Real Estate: If you have paid ₹10 lakh as a down payment of ₹50 lakh (assuming the rest is funded by a loan) and if the property value appreciates at the rate of 6% per annum, then the property value after 5 years would be approximately ₹67 lakhs. The net amount comes in afterpaying the loan principal would be ₹20 lakh. On top of that you are also likely to get an annual rental yield of approximately 3-4%, which adds up the value of the net return.

Want to see how your SIP perform against your real estate investment? Check now with our free SIP calculator.

In short, the return earned from REs comes out higher in comparison to FDs. Although other expenses like maintenance cost and property tax were not taken into consideration, returns from real estate will beat the returns from FDs.

Risk and Safety

It is always commendable to think about risk before investing. FDs and Real Estates cannot be said as completely risk-free in a real sense.

FDs can be said as almost risk-free as long as the bank is stable. In rare cases, if anything happens to the depositary bank, the deposit up to ₹5 lakh per bank is insured by DICGC (Deposit Insurance and Credit Guarantee Corporation). The only risk in FDs is that it hardly beats inflation.

On the other hand, investment in real estate carries multiple risks. The construction of property can be delayed. Disputes can also happen over land title. Further, the demand of property in a particular area can fluctuate, and due to its illiquid nature, sometimes it can take months to sell the property. Prices in real estate can remain stagnant for a longer duration, as it happened in many Indian cities from the year 2015 to the year 2020.

Liquidity and Flexibility

Fixed Deposits are far more liquid than real estates. In the case of FD, money can be taken out anytime with just a few clicks with the net banking facility. Although, you may lose some interest on premature withdrawal.

Real estate, on the other hand, is completely different. To sell a property, you have to go through a plethora of work like finding a buyer, negotiating a price, and doing paperwork, which can sometimes take months.

Clearly, an investor looking to temporarily park the money can opt for FDs due to its high liquidity and flexibility.

Taxation

Fixed Deposits come under the income tax slab rate. The interest earned above ₹40,000 per bank is subject to taxation. Your bank automatically deducts TDS once the interest earned reaches the minimum threshold limit. The TDS deduction can be 10% if a PAN is provided and 20% if a PAN is not provided.

The tax on real estate income depends upon how long you hold the property. If you sell the real asset within 2 years, then the income earned through that is labeled as short-term income and taxed as regular income. According to recent policy, long-term gain in real estate comes under 12.5% if property is sold after 22 July 2024 without indexation benefit. Any property if sold before 22 July 2024 levies 20% tax along with indexation benefit. Further, if you reinvest in another property, then you can even avoid the tax under sections 54/54F.

In a nutshell, for a high-income group, if property is reinvested, it can be highly tax-efficient in comparison to FDs.

Hidden Costs and Efforts

FDs are almost hassle-free investment methods. One can simply deposit the FD amount and forget it without ever needing to track the investment.

Real estate, however, comes with hidden costs like maintenance, society fees, insurance, and occasional renovations. If you rent it out, then you may have to face a period of no occupancies, which impacts the net income from that property.

Conclusion

Fixed deposits and real estate investments are meant for conservative investors. When you have a large amount to invest with a longer horizon, especially more than 5 years, then real estate investment combined with rental yield can always outperform returns made from fixed deposits. If your goal is to park the money for between 2 to 5 years, then fixed deposits are a better choice in terms of liquidity and flexibility.

In the end, it really depends upon the investor’s risk appetite and time horizon. For investors who seek guaranteed returns with no risk, can opt for FD. The investors who want to build wealth and can wait for at least 10 years can go for real estate. A balanced approach would be - keep your short-term money in FDs and long-term money in real estate for higher potential returns.

Reading Suggestion: https://www.globalpropertyguide.com/asia/india/price-history

Disclaimer:

The information provided in this article is completely for educational purposes. The website owner or the writer of this article does not guarantee the correctness of the data and also does not predict the future return. Readers of this article are advised to consult a certified financial advisor or tax professional before making any investment decision.

Also read : SIP vs Lumpsum and FD vs Liquid Funds

Published on : 24 Nov 2025

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