SBI, Bank of Baroda, Canara Bank, ICICI, HDFC, Axis Bank and several other lenders have raised their deposit rates to attract funds. It comes at a time when the growth of bank loans has exceeded that of deposits.
SBI has launched a 75-day Utsav deposit system, which offers 6.10% for fixed deposits. Seniors will receive 0.50% more. The offer is available until October 30.
Bank of Baroda has announced its “Baroda Tiranga Deposit Scheme”. Below, the deposits are available in two buckets. One offers 5.75% per annum for 444 days and another 6% for 555 days. The scheme is available until December 31. This is for retail deposits below Rs 2 crore. Senior citizens will receive 0.5% more, non-refundable deposits will receive 0.15% more. Canara Bank has also launched a 666 day deposit program offering 6%.
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Following the Reserve Bank of India’s decision to raise the repo rate by 50 basis points on August 5, a number of lenders raised fixed deposit rates at various maturities.
Experts had said that while FD rates had risen, the pace had been slow. Overall, the transmission of rising repo rates to FDs has been much slower than the transmission to lending rates. So, given the situation, will the rate hikes be enough to benefit investors with FDs? Also, will the higher FD rates attract investors to the stock markets?
[Deepesh Raghaw on expectations and movement from equity market]
The three consecutive rate hikes signify further impetus for rising interest rates on fixed deposits. Obviously, the era of extremely low FD rates is over. However, avoid over-reliance on DFs. When both inflation and tax are taken into account, bank DF returns are negative. However, you can opt for FDs for short-term capital protection, for example for emergency parking funds.
The benchmark repo rate now stands at 5.4%. Cumulatively, the central bank has raised the repo rate by 140 basis points over this cycle. Looking ahead, most economists expect it to reach 5.75-6% by the end of this calendar year. So how should fixed deposit investors calibrate their strategies?
If you are starting with FDs now, you should opt for shorter terms. Why? So that you can transfer them into higher rate deposits when the first ones mature. According to experts, you should also avoid the auto-renewal feature. This will allow you to renew your FDs at the best rates after taking into account your investment horizon and the highest available slab rate.
Experts also say you should create a timeline. Basically, invest in FDs maturing at different times. This will minimize the risk of reinvestment. In addition, a laddering strategy will ensure cash flows at regular intervals.
[Deepesh Raghaw on investment strategy]
Remember that guessing the best time to go for long-term FDs is a risky proposition. You may think interest rates have peaked, but they could still go up.
