Recently, there has been a sudden decline in Fixed Deposit rates across the country.
Fixed Deposit (FD) rates of top banks have fallen by an average 0.5-1 percent to 6.5-7.1 percent. This decline has been occurring since the month of January 2019. The Reserve Bank of India has cut the repo rate by 110 basis points from 6.5 percent to 5.4 percent. India’s largest bank, State Bank of India (SBI), has revised rates on fixed deposit (FDs) twice over a period of 15 days in August 2019. The bank also announced a reduction in its MCLR by 10 bps across all tenors. The bank further stated, “In view of the falling interest rate scenario and surplus liquidity, SBI also realigns its interest rate on term deposits (TD) w.e.f. September 10th. Bank slashes retail TD rates by 20-25 bps and bulk TD rates by 10-20 bps across tenors."
Following SBI’s recent move, many banks are now looking to link deposit rates to RBI’s repo rate. Hence, deposit rates are likely to fall further in the coming months.
What should I do?
If you have funds in your savings account, allocate them to less-than-one-year FDs, as it will earn you a higher 6.5-6.75 per cent (even 7 per cent in certain banks).
If you do not need money in the near future, you can extend your fixed deposit tenure and earn higher returns. A shorter tenure will allow you to cash in on any rate hikes two years or so.
Look into small and micro credit banks/NBFCs. Fincare Small Finance Bank offers 8.75 percent for FDs of 21 month-24 month tenure. Jana Small Finance Bank offers 8.6 percent for a 2-year Fixed Deposit (730 days). Suryoday Small Finance Bank offers 8.5 per cent for 1 year 6 months to 2 years deposits.
Invest in Government Bonds. Government bonds with a 7-year tenure offer 7.75 per cent, while a post office time deposit for 5 years fetches 7.7 per cent.
Conclusion
FD rates are revised on a regular basis. Though these are tough times for FD account holders, investors need not panic. They can park their savings in National Saving Certificate (NSC) and Reserve Bank of India Saving Bonds (RBISB) as they offer a blend of returns and safety.
