As deposit rates are close to the peak and most banks offering 7% or more on retail domestic deposits on select tenures, investors should lock in at higher interest rates and select the tenure based on their investment horizon.
HDFC Bank has launched two special fixed deposit (FD) schemes offering interest rates of 7.20% for a 35-month term and 7.25% for a 55-month term. Senior citizens will get 50 basis points more. The bank is offering 7% on deposits maturing between 18 months and 10 years.
As deposit rates are close to the peak and most banks offering 7% or more on retail domestic deposits on select tenures, investors should lock in at higher interest rates and select the tenure based on their investment horizon.
As diversification lowers the risk to your investments, experts say the FD portfolio should be spread across banks and various maturities.
Gaurav Aggarwal, senior director, Paisabazaar, says many macro-economic indicators and G-Sec bond yields are hinting at the peaking of interest rates. “These make it the right time to start booking FD tenures offering higher interest rates, especially if those are offered for longer tenures.”
While investing in special deposit schemes, individuals must factor in their investment horizons as premature withdrawal of fixed deposits usually incur penal rates and sub-optimal returns. They must also check payout options and compounding frequency.
Adhil Shetty, CEO, Bankbazaar, says as the special tenors offered by HDFC Bank are 35 months and 55 months. Depositors who expect to have a liquidity need at the end of these intervals can make full use of these rates. “When we are in a situation such as this where interest rates are peaking, the depositor faces a reinvestment risk. So, if you are looking for higher rates for longer periods, you may have to go for regular tenors that may be longer but offer a slightly lower rate,” he says.
Investors must also compare the fixed deposit rates offered by other scheduled banks as many small finance banks are offering FD yields of 8% and above. As these banks have also been classified as scheduled banks by the RBI, each depositor of these banks is covered under the deposit insurance for cumulative deposits of up to Rs 5 lakh.
