Purchasing power
Why a Fixed Return Can Quietly Lose Value
A fixed deposit feels like one of the safest promises in finance: put in an amount today, receive a larger, guaranteed amount later. The number does not change. What can change, quietly, is what that number is actually worth by the time it matures.
The gap between more money and more value
Suppose a deposit of ₹1,00,000 earns 7% a year for five years. At maturity the account shows roughly ₹1,40,255. That is ₹40,255 more than was deposited, and on paper it looks like a clear gain.
But if prices in the economy have also been rising, say by 6% a year over the same five years, then ₹1,40,255 five years from now buys noticeably less than ₹1,40,255 would buy today. Adjusted back into today’s purchasing power, that maturity amount works out to roughly ₹1,04,800. The saver still has more rupees than they started with, but only a little more real value, after five years of saving.
Why this is easy to miss
Interest rates are advertised clearly. Inflation is reported separately, often as a news headline about groceries. Few products put both numbers side by side and show what they mean for the same deposit over the same period. The gap between nominal and real value tends to go unnoticed until it has already been lived through.
What this means for product design
None of this means fixed deposits are a poor choice. It means that a rate fixed once at the start carries an assumption about the future that may or may not hold. A product designed with that in mind, one that can be configured within a governed range built for changing conditions, gives savers a clearer picture of what they are earning in real terms, not only how many rupees they will receive.
Try the Real Value Calculator on the Blog page with your own numbers to see how the gap changes at different rates, durations and inflation assumptions.
Written by the FINNAC team for general information only. Not financial, legal or investment advice.