Insurance vs Fixed Deposit: Where Should You Put Your Money?

People ask me this comparison constantly. My father kept everything in fixed deposits. Should I too? The honest answer depends on your tax bracket and what the money is for.

Fixed Deposit returns in 2026: Major banks are offering 7 to 8 percent per annum on FDs up to 5 years. Post Office Time Deposits offer 7.5 percent for 5-year deposits. These returns are fully taxable as income, at whatever tax slab you fall in. In the 30 percent bracket, an 8 percent FD gives you an effective return of 5.6 percent after tax.

LIC endowment plan returns: Traditional LIC plans (Jeevan Anand, Jeevan Labh) return approximately 5 to 5.5 percent IRR over 20 years. This includes all bonuses and final addition bonuses. The maturity amount under Section 10(10D) is completely tax-free if annual premium is below Rs 2.5 lakh.

The breakeven calculation: If you're in the 30 percent tax bracket, a post-tax FD return of 5.6 percent is roughly equal to a tax-free LIC return of 5 to 5.5 percent. FD has the edge in liquidity. LIC has the edge in discipline (you can't prematurely withdraw easily, which prevents impulsive spending) and provides life cover as a bonus.

For the 20 percent bracket: FD post-tax gives 6.4 percent versus LIC's 5 to 5.5 percent. FD wins on returns. LIC still wins if you need the discipline or the life cover.

For the 5 percent bracket or NIL bracket: FD at 7.6 percent post-tax beats LIC significantly. Senior citizens, housewives, and students should strongly consider FDs over insurance for their savings.

My recommendation: Never buy a life insurance plan as a substitute for an FD. Buy life insurance for the cover it provides. If you also get reasonable returns, that's a bonus. Use the Premium Calculator to see exactly what an LIC plan would return, then compare with your bank's current FD rate.

Use our free [Maturity Calculator](/calculators/maturity) to calculate LIC plan returns for comparison.