For countless years, the solution to the issue “what to do with savings” was simple: go to a bank, fill out some forms, and put the money away. For a long time, the Fixed Deposit (FD) has quietly protected Indian households’ money, proving that things are steady and predictable.
But a lot has happened in the world of money. Digital platforms have made it simpler for everyone to grow, and more and more people are asking tough questions. When you pick where to invest money, you need to consider more than just safety. You should also think about how well it works. Is the safety of an FD stopping you from growing your wealth?
Let’s talk about the two main types: the old-fashioned ones (fixed deposits) and the newer, more flexible ones like Peer-to-Peer (P2P) lending, which is becoming a more widespread way to lend money to other people.
The Traditional Way: Fixed Deposits
FDs are like comfort food when it comes to money. They are well-known, easy to grasp, and come with a promise of safety. Most Indian banks would be paying good interest rates of between 6.00% and 7.20%. A few Small Finance Banks are also providing up to 8.00%.
The Good Part:
- Peace of Mind: FDs are generally considered low-risk instruments, subject to bank creditworthiness and applicable deposit insurance limits.
- Predictability: They offer a predefined interest rate, allowing visibility on expected maturity value, subject to applicable terms.
The Reality Check:
FDs are safe, but they don’t usually make a lot of money. According to Trading Economics, inflation will go up by around 4% over the next several years. This indicates that the real growth of your money (interest earned adjusted for inflation) may be limited. If you just want to keep your money secure, FDs are a great choice. But if you want to become wealthy, merely using them may be like driving a reliable car in the slow lane: you’ll get there, but it will take a long time.
The Modern Challenger: Investment in People (P2P Lending)
This is where the narrative starts to become interesting. Technology has made it feasible for average individuals to act like banks by cutting out the intermediaries in the borrowing process. This is the time to give individuals money.
Peer-to-Peer (P2P) lending platforms connect lenders with borrowers who are likely to be able to pay back the money. These platforms let you make more money since they don’t have to pay the high costs of operating regular banks.
Why is it becoming more popular?
- Better Interest: P2P lending may offer the potential for attractive interest compared to certain traditional fixed-income products, subject to borrower performance and associated credit risks.
- The Double Benefit: You’re not only generating more money, but you’re also helping other people reach their objectives, like a small business owner who needs money to keep their business running or a family that wants to pay off their debts.
- Tech-Driven Safety: New platforms use the latest AI and machine learning to swiftly determine whether a borrower is creditworthy. They assess borrower profiles using multiple data points beyond traditional credit scores to support risk evaluation.
The Strategy: Diversification is Key
People shouldn’t be arguing over which one to choose; they should be talking about how to combine them to build a stronger portfolio.
You may think of FDs as your defense, like a goalkeeper who protects your short-term needs and emergency money. But for your midfielders and strikers, who you want to see score goals and become better quickly, new approaches to invest in people are preferable.
Some individuals choose to diversify across traditional fixed-income products and P2P lending based on their individual risk tolerance, liquidity needs, and financial goals. This plan keeps the portfolio balanced without placing all of the money at risk of market changes.
Conclusion
Save and optimize is the new way to do things. Using modern resources and making choices about people based on data with P2P lending can be considered as part of a diversified portfolio for individuals comfortable with credit risk. It may serve as an additional fixed-income option for investors seeking interest income, subject to associated risks.
Disclaimer: This article is just written to provide you with information. Readers should conduct their own research or consult a financial adviser before making any financial decisions.
