Home>Fixed Deposit>Fixed Deposit vs Sovereign Gold Bond

Fixed Deposit vs Sovereign Gold Bond

Updated on: Sep 21st, 2023 | 10 min read

Gold is often considered an inflation hedge, i.e., an investment capable of protecting you from the decrease in the purchasing power of your native currency. You can use such assets to save yourself from the anticipated drop in the value of money. Similarly, fixed deposits help you grow your savings at a fixed interest rate. They are safe and secure investments, and you can choose to terminate them anytime you want.


Wondering which is the best investment for you: gold or FD? This article will explain in detail what sovereign gold bonds and fixed deposits are, their respective benefits, and help you settle the sovereign gold bonds vs fixed deposit debate.

What is a Sovereign Gold Bond?

The Reserve Bank of India issues Sovereign Gold Bonds (SGBs) on behalf of the government. These bonds are issued in small tranches, enabling you to purchase small amounts easily.


Wondering what investing in SGB entails? Investing in sovereign gold bonds means owning gold without holding it physically and earning a fixed interest. The tenure for SGBs is eight years. The subscription amount per fiscal year varies depending on the investor. For example:

  • An Indian resident can buy up to 4 kg of gold.
  • Charitable foundations and trusts can buy up to 20 kg of gold.
  • Joint families or Hindu Undivided Families can buy up to 4 kg of gold.
  • Minors can invest in gold bonds after registering an adult on their behalf.

Benefits of SGB

Investing in gold bonds can yield high gains with potential capital appreciation. Some of the key benefits of investing in SGBs are:

  • You need not worry about risks or exposure when investing in SGBs. Sovereign Gold Bonds are issued on behalf of the government and come with inconsequential risks.
  • RBI guarantees an interest rate of 2.5% on gold bonds; the rate remains uniform for the entire life of the bond, i.e., for eight years. You receive interest returns on a half-yearly basis. Notable, this interest is over and above your gains from gold price appreciation.
  • Buying a gold bond is simple, and there are no restrictions in investing in SGB as long as you are an Indian resident. Individuals, charitable institutions, universities, Hindu Undivided Families, and trusts are also eligible.
  • You can purchase SGBs either online or offline as per your convenience. You need to furnish a few KYC documents such as Aadhaar Card and PAN Card to complete the purchase.
  • Sovereign gold bonds are surprisingly affordable, the minimum investment being 1 gm of gold only. Moreover, there is a discount of Rs 50 per gram when you buy it online via digital platforms.

What is a Fixed Deposit?

Fixed Deposits (FDs) are one of the oldest investment tools in the market. Since the early 1980s, FD has been popular with people of all income levels. It stands out among other investment options because of its long list of perks. You can open your Fixed Deposit either with any of the nationalised banks or with a Deposit Taking Non-Banking Financial Company (NBFC). You can deposit a fixed amount of money, and the banks repay the principal amount with interest at the end of the tenure. The maturity period for Fixed Deposits ranges from seven days to 10 years.

Benefits of FD

Like gold bonds, fixed deposits offer several benefits making it hard to choose one between FD and gold investment. Here are some of the benefits of investing in Fixed Deposits:

  • Fixed Deposits are one of the safest investments owing to their steady returns. Banks hold your deposits securely until the term expires. Moreover, these deposits accompany little to no interest rate risks, implying that the returns will be stable throughout the period.
  • The lowest amount for a fixed deposit varies from bank to bank, some banks start from Rs. 1,000, making it an easily accessible investment option for all income groups.
  • You can open an FD account online in just a few clicks if you have an existing savings account. You could also open an FD account by visiting your nearest bank branch.
  • Fixed Deposit investments are available to all Indian residents. Non-resident Indians, minors with the assistance of an adult, senior citizens, partnership firms, individual owners, companies, and societies or clubs fit the eligibility criteria for FDs, too.
  • Fixed Deposits can be flexible. Depending on the bank, you can avail of upto 90% of the FD as overdraft if you require immediate funds. You can also make a premature withdrawal by paying a penalty charge.

Differences between Sovereign Gold Bond and Fixed Deposit

Sovereign gold bond vs fixed deposit, which is a better investment option? Should you opt for an investment in gold or a fixed deposit? Both these instruments offer many benefits. The detailed table below on gold vs FD might help you arrive at a decision.

 Sovereign Gold BondsFixed Deposits
RiskThere may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for and interest is guaranteed by GOI.
FDs are not affected by external factors. However, inflation could adversely affect the real rate of return on deposits. The DICGC insures principal and interest up to a maximum amount of five lakhs.
ReturnsSovereign Gold Bonds are lucrative given their periodic high return rates at 2.5%. This is over and above the gains from gold price appreciation.Banking or deposit-taking non-banking financial institutions set the return rate when you open a new fixed deposit account. Returns are usually higher for senior citizens
LiquiditySGBs tend to have low liquidityFDs offer more liquidity than sovereign gold bonds. You can withdraw your deposits anytime you wish (although, a penalty is applicable in case of premature withdrawal)
Loan facilityYou can use SGB as collateral for loans from banks, financial institutions and NBFCsYou can avail loans against your FDs; the amount varies across banks
Tax benefitsCapital gains on Sovereign Gold Bonds are not taxable even if you hold till maturity.The interest earned on fixed deposits is fully taxable. However, senior citizens do get a deduction of up to Rs. 50,000 on the interest income.

Closing Thoughts

So, between SGB and FDs, both are secure choices for investing your surplus money. If you are new to the financial market, you can consider investing in either of them. Invest in these financial instruments after minutely assessing your risk tolerance capacity and understanding the terms and conditions.

Analyse your short-term and long-term financial goals and choose what suits you better between sovereign gold bond vs fixed deposit.


What are the different ways to invest in gold?

Earlier, if you wished to possess gold, the only way to do so was by purchasing the physical metal from the market. However, it came with many costs, such as polishing, storing, etc. But, today, several alternatives to physical gold, such as digital gold, SGBs (Sovereign Gold Bonds) and Gold ETFs (Equity Traded Funds), are available. You can invest in them to avoid maintenance expenses and earn interest on your investment.

What are tax-saver FDs?

Tax-saver Fixed Deposits allow you to claim a deduction of up to Rs. 1.5 lakhs from your net taxable income under Section 80(C) of the Income Tax Act. This deduction can be claimed only in the year the FD account is opened. Notably, the interest earned on Fixed Deposits is always taxable (with the exception of senior citizens who get a deduction of up to Rs. 50,000 on the interest income as well).

What are the risks associated with SGBs?

Loss of capital is the only risk associated with SGBs. The prices for gold bonds are dependent on the rates of gold in the international market. It goes up and down based on market conditions. You could incur a capital loss if the market price of gold falls.

What are the risks associated with FDs?

While fixed deposits have clear benefits, they also come with certain risks. For instance:

  • Not all fixed deposits have high liquidity.
  • Although bank FDs are safe, in case of a bank default, FDs allow you insurance claims for deposits of up to Rs. 5 lakh only.
  • Fixed deposits are known for their fixed returns. However, inflation can impact real returns.
Earn once in a decade
returns on FD

Lock in returns as high as
8.35% before they go down

Top Banks FD Rates