Bank fixed deposit, also known as term deposit, is one of the most popular investment products in our country. Bank FDs are preferred by investors of all ages as they are considered safe and can be easily liquidated when needed. In the midst of the Covid pandemic, over the past 2 years Fixed Deposit (FD) investors have seen their returns decline, but things are looking up now. With the Reserve Bank of India (RBI) raising repo rates to rein in rising inflation, banks are also expected to pass the benefits on to customers. Every time policy rates start to rise, banks start raising interest on FD rates.
How can FD investors reap the maximum benefits?
Amit Gupta, MD, SAG Infotech says if you are looking to book a long-term FD or a large FD needs to be renewed, now may not be the right time to do so. “You may not want to book a long-term FD or renew a large FD at this time if you need to book a long-term one. Long-term rates should not be locked in now. Right now, runaway inflation will cause preload rates to rise. Therefore, it would be ideal to subscribe to short-term auto-renewing FDs of around 6 months each,” said Amit Gupta.
He added that if you have the flexibility, a time horizon of six months to a year is ideal. When choosing a duration, I suggest a year. A higher overall return could also be obtained by splitting it into two 6-month FDs with a rollover option, given that we are in a rising interest rate environment.
Vijay Singhania, chairman of TradeSmart, said RBI had raised repo rates, but fixed deposit rates were not moving in parallel. On the other hand, lending rates kept pace with repo rates. Most banks have raised interest rates by 20 to 30 basis points, which is well below repo rates.
According to Vijay Singhania, investors can start locking in fixed deposits currently, at least part of their investments. The next decision can be taken after the decision of the Monetary Policy Committee which can give us a better idea of the path of interest rates.
Will FD rates cross the 7% mark?
Some economists believe there is still room for upside. So if that’s the case, FD rates could cross the 7% mark.
“Although the RBI has said there is a decrease in inflation and rates may not rise at the same rate as previously expected, some economists believe there is still room for upside. If this is the case, we could be approaching the 7% mark on repo rates. In this case, banks can raise fixed deposit rates by 30 to 40 basis points,” said Vijay Singhania.
“The majority of banks raised their deposit rates by 20-30 basis points after the repo hike. Depositors can expect another rate hike of 40-50 basis points over the next two quarters, even if not everything is transmitted. That would bring the figure closer to 7%,” said Amit Gupta.
Best FD rates offered by these banks
IDFC First Bank offers the highest FD interest rate of 6.25% per annum, for a term of 5 years and more for the general public. The second highest interest rate is 5.75% per annum, offered by Axis Bank and HDFC Bank for terms of 5 years and above. The third highest interest rate offered is 5.60% per annum, offered by IDBI Bank for a term of 5 years and above.
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