Bigger Banks (SBI, HDFC, ICICI) Increasing FD Rates (Now at 7%)

While smaller banks had been offering high-interest rates on bank FDs for the last few months, now even the biggies of the field are increasing the FD rates as expected. the 3 biggest banks of India, SBI, HDFC and ICICI have all increased their Fixed Deposit FD rates in line with the increase in RBI repo rates.

According to the bank’s official website (as of 15-Dec-2022), the following are the latest FD rates:

For other banks, here is the FD interest rates data (a few weeks old)

As I had written a few months back about rising FD rates in India (and also discussed whether FD rates increase to 7%), this doesn’t come as a surprise. The larger banks, given their say in the system and inertia, are the slowest to increase interest rates for deposits.

Is this now the peak FD rate that these banks will offer?

I don’t think so. I am sure the rates will increase further. Not too much but they still will hike interest rates in 2023. It is for this reason that you should still not lock in all your money in long-tenure FDs. It is best to go for FD Laddering to optimize FD returns. And while putting the bulk of your money in fixed deposits, do give some thought to which banks are safe for FD and not be too attracted by the high rates offered by many smaller and new banks.

Also, FDs are not very tax-efficient as they are taxed as per the income slab of the deposit holders. So this is a big negative for those in the 30% tax bracket. Don’t get me wrong. I am not saying FDs are bad. They are useful for most people but only to an extent. But the taxation of FD is something that lets it down when you are looking to park money for a few years. In such cases, you can consider debt funds as FD alternatives to park your money as due to the indexation benefits of debt funds, they offer better post-tax returns than FDs.

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