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This website here shows a comprehensive comparison of term deposit rates in Sri Lanka.

Currently you can get a 12 month term deposit at a rate of 10.75% with an AA+ rated bank.

Compare this to what I could get in Australia - and you're looking at about 2.25% for a 12 month term deposit.

Now ok - 'Inflation is higher in Sri Lanka' you say.

Looking at this website - we can see that over the last 5 years inflation has swung between 1% and 8% and that it's currently around 5%.

Australia on the otherhand, has been between 1% and 3% and is currently about 1.25%.

Ugh.. ok I think I've answered my own question - it seems like in both cases the term deposit rate is about 2x inflation.

So to turn this into a useful question - is there a scenario where doing a term deposit in a developing country can be considered about similar risk/reward as an index fund in a developed country?

The context is - my partner is Sri Lankan and has savings in Sri Lanka - and it's a question of whether she should just continue with her savings in a term deposit there - or whether it's worth moving that money to Australia and putting it in an index fund.

dwjohnston
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Fixed Deposits in an AA+ bank are relatively good for safety and liquidity. You can always break it and lose your interest if you need the money. Your capital is mostly safe.

I don't think an index fund has a similar purpose. If you were to need money urgently in the midst of a recession, you would encounter a huge loss if you were forced to sell your fund.

If you don't have any known big expenses coming up, I'd recommend keeping a small amount in a bank account and most of it in an index fund or ETF for growth.

Returns from a bull market will beat interest rates from a bank account. As you noted, interest rates in other currencies rise when financial institutions expect the currency to depreciate.

I plan to keep 10% of my savings in bank accounts for liquidity. As I'm an Indian, I keep it in rupees. The other 90% of the savings I invest in stocks and ETFs for higher growth.

Zesty
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