SBI, Bank of Baroda, Canara Bank, ICICI, HDFC, Axis Bank and several other lenders have hiked their deposit rates to attract funds. It comes at a time when growth in bank loans has surpassed deposits.
SBI has launched a 75-day Utsav Deposit Scheme, which is offering 6.10 per cent for fixed deposits. Senior citizens will get an additional 0.50 per cent. The offer is available till 30th of October.
Bank of Baroda has announced its ‘Baroda Tiranga Deposit Scheme’. Under it, deposits are available in two buckets. One offers 5.75 per cent per annum for 444 days and another offers 6 per cent for 555 days. The scheme is available till the 31st of December. It is for retail deposits below 2 crore rupees. Senior citizens will get an additional 0.5 per cent, non-callable deposits will get an additional 0.15 per cent. Canara Bank has also launched a 666-day deposit scheme offering 6 per cent.
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After the Reserve Bank of India's move to hike the repo rate by 50 basis points on the 5th of August, a number of lenders have raised fixed-deposit rates in various maturities.
Experts had said that while FD rates had risen, the pace had been slow. Overall, the transmission of repo rate increase to FDs has been much slower than the transmission to lending rates. So, given the situation, will the rate increases be enough to benefit investors with FDs? Also, will the higher FD rates lure away equity market investors?
[Deepesh Raghaw on expectations and movement from equity market]
The three consecutive rate hikes mean further momentum for rising fixed deposit interest rates. Clearly, the era of extremely low FD rates is over. Still, avoid excessive reliance on FDs. When one accounts for both inflation and tax, returns from bank FDs are negative. However, you can opt for FDs for short-term capital protection, for example, for parking emergency funds.
The benchmark repo rate now stands at 5.4 per cent. Cumulatively, the central bank has hiked the repo rate by 140 bps in this cycle. Going ahead, most economists expect it to rise to 5.75-6 per cent 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 tenures. Why? So that you can roll them over into higher-rate deposits when the former mature. According to experts, you should also avoid the auto-renewal facility. That will allow you to renew your FDs at the best rates after taking into consideration your investment horizon and the highest available slab rate.
Experts also say that you should create a ladder of maturities. Basically, invest in FDs maturing at different times. Doing so will minimise the risk of reinvestment. Also, a laddering strategy will ensure cash flows at regular intervals.
[Deepesh Raghaw on investment strategy]
Remember, guessing the best time to opt for long-term FDs is a risky proposition. You might think that interest rates have peaked, but they could increase further.
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