Indians have been concerned about the increasing inflation. And to be fair, it’s not just us Indians but people across the world. In order to stabilise and curb inflation, many countries have been raising their federal interest rates, as a response to the increasing inflation. In alignment with the global economies, the RBI too has been raising the repo rates. In the last few months alone, the repo rates have increased by 190 bps already.
Though there have been no changes to repo rates in recent Monetary Policy Committee meetings, the four consecutive increments have catalysed a rise in the fixed deposit interest rates offered by the banks and NBFCs. What this means is that the fixed deposits now offer a lot better returns than what they were offering just a few months back.
Several banks and financiers have hiked their fixed deposit interest rates after the repo rates were increased. For conservative savers, this has once again made a fixed deposit a lucrative savings option that helps grow savings in a consistent and predictable manner
Maximise the Benefits of the Rising FD Interest Rates
If your risk appetite is low, a fixed deposit with higher interest rates can be one of the safest ways to grow your savings. Even if your risk appetite is high, you can set aside savings in a fixed deposit as an emergency fund with the assurance of guaranteed returns. Given the fact that there is a lot of volatility in the equity market, fixed deposits ensure the utmost safety and hence, when it comes to your emergency money, fixed deposits can be chosen as a peace-of-mind-option.
Most individuals tend to choose bank FDs, because of the Rs 5 lakh DICGC insurance offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). However, if you’re looking to benefit from a combination of high FD interest rates and safety, you can also consider putting a part of your funds in NBFC Fixed Deposits. You can ascertain the safety of your deposit in NBFCs, by checking the safety ratings awarded by leading credit rating agencies like CRISIL and ICRA. The higher the safety ratings on these deposits, the safer these deposits usually are. CRISIL and ICRA award these ratings based on their credentials and past repayment history. Thus, you can be sure of a lower likelihood of defaults and delays, if the ratings awarded are high.
Higher interest rates than savings schemes
Since the increase in repo rates by the RBI, several banks and NBFCs have increased their fixed deposit interest rates. Most 5-year bank FDs now offer interest rates in the range of 7 to 7.85%, which was around 5.5% until last year. Do check banks offering highest FD rates. And many NBFCs offer even higher rates. Not only are these rates higher than interest rates offered by savings accounts, but also in the range of interest rates offered by government savings schemes such as the Senior Citizens’ Saving Scheme and PMVVY.
The interest rates offered by NBFCs are higher than those offered by bank fixed deposits. The rate of interest on the Post Office’s two-year fixed deposit was hiked from 5.5% to 5.7%. A three-year FD would now offer 5.8% instead of the earlier 5.5%. This is an increment of 30 bps for the 3rd quarter of the present fiscal year.
The RBI repo rate increase usually results in an increase in interest rates offered by RBI bonds and small savings schemes. However, the prevailing FD interest rates of many NBFCs are higher than many government savings schemes, which can help many looking to lock in their fixed money at higher rates.
Should you reap the benefits of high FD interest rates?
Amid rising inflation rates, most individuals tend to contemplate whether prevailing FD interest rates can help them save enough for the future. With existing inflation rates hovering around 7%, it is best to choose fixed deposit issuers offering interest rates of 7% or more.
Interest rates offered to senior citizens are usually higher, which helps them benefit from rates above 7.5% on their deposits.
With the current upward trend in deposit rates, it is best to take advantage of the high FD rates and ladder your deposits. Laddering can help you benefit from rising interest rates. Instead of locking in all your savings for a fixed period at a fixed rate, consider choosing different tenors, to ensure liquidity for emergencies as well.
With the hike in fixed deposit rates, securing your savings for the future is safe and lucrative. When choosing deposits to suit your needs, it is best to choose financiers with high safety ratings. Several financiers also offer the flexibility of online deposit facilities, flexible payout options and doorstep document collection facilities too.
Thus, investing in a fixed deposit is not only lucrative but also very convenient. With the effect of compounding, you can look at attractive FD interest rates that enable you to grow your savings conveniently.