Real Estate Vs. Bank DepositsBy
Akhila Masapogu, 30-Jan-2020
Looking for a medium through which you can invest spare money? In these times of recession, most people would suggest you go for fixed deposits. What are fixed deposits? FDs or Fixed Deposits are a scheme offered by banks and non-banking financial organizations wherein they lock your money for a specific period and offer a higher rate on returns than a savings account. Banks generally don’t allow you to withdraw them before their maturity, but you can do so in case of an emergency. However, banks will charge a penalty for such transaction
On the other hand, real estate investments are real i.e. it is an investment in a tangible asset like land, property, and other similar resources. Unlike FDs, where you will get your money or money’s worth after a period, real estate ensures that you get a lucrative return on assets after a specific time. When you are planning for the long term, real estate is amongst the best investments that you can opt for. There are three categories that you can choose amongst – Residential, Commercial and Industrial, each of which have some specific characteristics which differentiate them from the rest.
What should you opt for- Real Estate or Bank Deposit?
Real Estate and Bank Deposits have been the chosen ones for most investors. But, they cater to a different set of investors with different expectations and this brings about an important question, which is better? Both are heavyweights and we have tried to highlight points that tell them apart from one another.
Short-term and Long-term Performance
If you are looking for short-term returns, there is no point in considering FDs as an investment. FDs will bear fruit only when they are kept for a considerable period. Even if you are investing in FD with a motive of taking back your money after a few months and gain some profit, let us inform you that there will hardly be any profit after the bank imposes the penalty. In the short term, strategic investment in real estate can give you a decent profit.
Long-term is where FDs make matters better. You can earn around 7 percent per annum when you decide to invest in FDs. The interest rate increases with the increase in the span of investment (not eclipsing 7 in any case!). Looking at the way the population is rising and the scarcity of land, we can safely say that investment in real estate for the long-term will bring you a hefty profit. In the worst-case scenario, even if it doesn’t bear profit, there are rare chances of suffering a loss if the investment is well planned.
For a bull, real estate is where he will find solace and for the bear, he would be happy with the FD. What do we mean by the statement? Real estate is a sum of many factors. It doesn’t merely involve submitting your money to a financial institution for x number of years. It requires a lot of other factors all of which need time and thoughtful planning.
On the other hand, bank deposits are considered one of the safest mediums of investment. The only risk going forward is the bank going bankrupt which is highly unlikely. Being the one with a lower risk, the returns are limited in its case. If you are looking to go big, opt for real estate; if you want to play safe and are content with limited return on your plate, bank deposits will serve you right.
Liquidity and Ease of Exit
Bank Deposits are not highly liquid, but when you compare them with real estate investments, they are much easier to encash. Opting out of FDs is a simple affair. All you need is to go to your bank and fill up a form. The bank will process the form and give you your rightful money.
Entering and exiting a real estate investment is a tricky affair. You may opt-out of the project at any time, but there are chances that you won’t get the entire amount back. Be wary of your condition and enter a real estate investment only when you are sure that you have enough liquid investments in hand alongside.
There is no concept of resale value when it comes to Fixed Deposits. You can ask your bank to break the FD and get the money after surrendering it to the bank. It is a hassle-free process and will hardly involve any complex procedures or time. On the contrary, getting money out of a real estate investment can turn out to be a complex process owing to its nature. It will be easier if you are investing in any real estate fund. It may also involve lengthy processes that may take up a lot of time.
If you ask us, which of these investments is better, we will say that it is a tricky affair. There are a lot of factors involved and we need to consider all of them before deciding the best for us. Talking about the current scenario, most of the countries across the globe are suffering from the recession. Banks tend to decrease their fixed deposit rates to counter the situation and it may not be the go-to option during tough times.
Real estate is the silent king in such a scenario. The prices of properties are on an eternal rise and they stop rising and even go downhill during the recession. It is mainly due to a lack of cash in Millenials’ hands and their reluctance to use whatever is in store. This leads to a lower demand which leads to a fall in price. A smart investor can score a great property at a