Fixed Deposits (FDs) are one of the most common types of investments in India. Aside from providing a guaranteed return and greater interest rates than savings accounts, FDs also provide income tax advantages. Apart from small finance banks, some banks are currently giving attractive interest rates. DCB Bank has the highest FD interest rate of 8% available to regular clients. Personal finance experts feel that the high bank FD interest rate regime, which began in May 2022 after the Reserve Bank of India (RBI) hiked interest rates six times in a row, would not endure long.
Why high bank FD Interest Rates may not be Sustained
On December 8, the RBI maintained the repo rate at 6.5 percent. The central bank has opted to maintain the key benchmark policy rate steady for the fifth time in a row. Furthermore, the US Federal Reserve maintained key interest rates constant and anticipates three rate decreases next year. To battle excessive inflation, the Fed has raised rates 11 times since March 2022. When the repo rate changes, so do the interest rates on fixed deposits and other savings plans.
How do Repo Rates Affect FD rates?
When the repo rate rises, banks begin passing on the rate increase to consumers, causing FD interest rates to rise, and when the repo rate falls, FD interest rates fall as well.
How may foreign direct investors profit from such a scenario?
Fixed deposits have also seen increased interest as a result of the rate changes. "Customers can lock in their money in FDs with shorter tenures offering higher returns," said Adhil Shetty, CEO of BankBazaar.com.
"However, it will be advisable to take advantage of the current high rates and book your FDs as soon as possible if you are planning to go for short- to medium-term FDs with tenure of up to 3 years, as there is a greater likelihood that rates will drop in such FDs," said Abhijit Roy, chief executive officer of GoldenPi.
Laddering of Bank FDs
Personal finance gurus advise investors to explore a ladder plan if they want to invest in bank fixed deposits for a longer length of time.
"They can also investigate strategies such as laddering to maximise returns," Adhil Shetty advised. Bank FD laddering is a strategy that involves purchasing numerous FDs maturing at different times.
