What Does the Decline in Fixed Deposit Interest Rates Mean to You?
Last Updated : June 2, 2020, 11:18 a.m.
The disruption caused due to the COVID-19-induced lockdown has forced the Reserve Bank of India (RBI) to slash the repo rate by as much as 115 basis points over the last two months. This has brought down the loan rates much to the joy of borrowers. But for someone relying heavily on fixed deposits, this could be worrisome. The massive reduction in loan rates has forced banks to do a similar cut in the deposit rates so that their margin is maintained. Fixed deposit rates have come down to as low as 4% for a 6-month period. However, this has not deterred conservative investors from putting money in fixed deposits. If the deposits from March 27, 2020, to May 8, 2020, are concerned, people have invested around INR 4.4 lakh crore in fixed deposits. Now it poses a question mark for all those sticking to fixed deposits as their primary or possibly the sole investment. Well, the market situation is not in your hand. But you can do some fine changes to your investment to ensure you put your future on the right track.
A Conservative Investor? Look for a Long-term Investment in Fixed Deposits to Accumulate Decent Amount
Aversion to risk is common amongst conservative investors who don’t fancy playing the game of fluctuation that equity products are known for. Fixed deposits earning you stable income over time can go in sync with your conservative investment mindset. But the yield has to be decent enough for you to invest your money. If we look at the interest rate pattern of top banks, the highest rate remains for a fixed deposit period of 5-10 years. Let’s check out the interest rate on fixed deposits offered by top banks to substantiate our point of long-term investment.
SBI Fixed Deposit Interest Rates (For Amount Less Than 2 Cr)
| Deposit Periods | Interest Rates for General Public (in per annum) | Interest Rates for Senior Citizens (in per annum) |
|---|---|---|
| 7 - 45 Days | 2.90% | 3.40% |
| 46 - 179 Days | 3.90% | 4.40% |
| 180 - 210 Days | 4.40% | 4.90% |
| 211 Days - Less Than 1 Year | 4.40% | 4.90% |
| 1 Year - Less Than 2 Years | 5.10% | 5.60% |
| 2 Years - Less Than 3 Years | 5.10% | 5.60% |
| 3 Years - Less Than 5 Years | 5.30% | 5.80% |
| 5 Years - 10 Years | 5.40% | 6.20% |
HDFC Fixed Deposit Interest Rates
The private sector banking leader HDFC Bank has also slashed its fixed deposits in the wake of sharply falling loan rates in response to massive cut in the repo rate.
Interest Rates for Deposits of Less Than INR 2 Crore
| Deposit Periods | Interest Rate for General Public (In Per Annum) | Interest Rate for Senior Citizens (In Per Annum) |
|---|---|---|
| 7-14 Days | 3.00% | 3.50% |
| 15-29 Days | 3.50% | 4.00% |
| 30-45 Days | 4.00% | 4.50% |
| 46-60 Days | 4.50% | 5.00% |
| 61-90 Days | 4.50% | 5.00% |
| 91 Days-6 Months | 4.50% | 5.00% |
| 6 Months 1 Day - 9 Months | 5.00% | 5.50% |
| 9 Months 1 Day - Less Than 1 Year | 5.25% | 5.75% |
| 1 Year | 5.60% | 6.10% |
| 1 Year 1 Day - 2 Years | 5.60% | 6.10% |
| 2 Years 1 Day - 3 Years | 5.75% | 6.25% |
| 3 Years 1 Day - 5 years | 5.75% | 6.25% |
| 5 Years 1 Day - 10 Years | 5.75% | 6.50% |
ICICI Bank Fixed Deposit Interest Rates
Another top bank but does not have much to give you on the interest rate front. Let’s check out the ICICI Bank Fixed Deposit Interest Rates below.
Interest Rates on Deposits of Less Than INR 2 Crore
| Deposit Periods | Interest Rate for General Public (In Per Annum) | Interest Rate for Senior Citizens (In Per Annum) |
|---|---|---|
| 7-14 Days | 3.25% | 3.75% |
| 15-29 Days | 3.50% | 4.00% |
| 30-45 Days | 3.75% | 4.25% |
| 46-60 Days | 4.25% | 4.75% |
| 61-90 Days | 4.25% | 4.75% |
| 91-120 Days | 4.25% | 4.75% |
| 121-184 Days | 4.25% | 4.75% |
| 185-289 Days | 4.75% | 5.25% |
| 290 Days to Less Than 1 Year | 5.25% | 5.75% |
| 1 Year - 389 Days | 5.55% | 6.05% |
| 390 Days - Less Than 18 Months | 5.55% | 6.05% |
| 18 Months - 2 Years | 5.75% | 6.25% |
| 2 Years 1 Day - 3Years | 5.75% | 6.25% |
| 3 Years 1 Day - 5 Years | 5.75% | 6.25% |
| 5 Years 1 Day - 10 Years | 5.75% | 6.55% |
Note – The bank gives an additional 0.30% interest to senior citizens on their deposits upto INR 2 crore for a period of more than 5 years to upto 10 years. The extra 0.30% interest is applicable for deposit accounts opened or renewed between May 20, 2020, and September 30, 2020.
Above, we have showcased the fixed deposit rates of top banks for deposit amounts upto INR 2 Crore. Deposits can be made more than that amount too. Since not many may have more than INR 2 Crore to book a fixed deposit, we have restricted our study to around INR 2 crore.
For your deposit to yield a significant number, it is imperative you keep it for long. The higher rates on a long tenure will help you generate a decent amount.
Corporate FDs are More Attractive in Terms of Interest Rates – But Shall You Invest There?
Non-banking financial companies (NBFCs) also offer fixed deposits apart from banks and at a greater interest rate too across deposit tenors. It might make you ponder whether they are the ones to go with as far as FD is concerned? If you are a conservative investor, look to invest in a fixed deposit of the company that has a credit rating of A, AA and above assigned by agencies such as Moody’s, CRISIL, CARE, etc. Such ratings imply a greater degree of solvency and ensure timely payment to creditors. However, if the money goes into the financial instrument of a company with a weak credit rating, there are chances of reduced return than what could be the case at the time of booking the deposit. You might not be allowed to withdraw money from your fixed deposit if the company goes through a financial mess. Dewan Housing Finance Limited (DHFL) did pretty much the same thing last year when it stopped fresh inflows while disallowing premature withdrawal of money amid a liquidity crunch induced by the IL&FS credit defaults.
Shall You Look to Invest in a Debt Mutual Fund?
As a conservative investor, you could even think of investing in debt funds. But the recent development of the Franklin Templeton Investments deciding to discontinue 6 of its debt mutual funds has posed serious question marks over the viability of this asset class. Yes, there’s a problem in the debt mutual fund segment owing to the IL&FS crisis. A lot of non-banking financial companies gave loans to IL&FS by issuing their bonds and debentures to mutual fund houses. Once IL&FS defaulted on loan payments to these NBFCs, they started delaying payments, due on the issued instruments, to MF houses. This, in turn, decreases the return of some debt funds sharply. As debt funds invest in debt instruments and money-market instruments issued by banks, NBFCs and companies in other sectors of the economy, it becomes imperative on your part to check the credit rating of such instruments. You need to check the fund where you are investing has maximum exposure in instruments with a good credit rating.