Banks continue to hike interest rates on term deposits with several lenders, including HDFC Bank and Punjab National Bank (PNB), doing so on Thursday. While HDFC Bank increased interest rates across tenors by as up to 40 basis points (bps), PNB raised interest rates on fixed deposits with maturities of one year to three years, five years and more, and up to ten years.
While the increases may improve the returns for savers, the rates remain well below those from the equity markets, especially since the interest earned is taxable.
Loan growth has been showing an uptrend in the past few months with the resumption of business activity. The non-food credit grew at around 14.5% year-on-year (y-o-y) in the fortnight to July 29. However, deposits in the banking system have been growing at a slower pace of 9.1% y-o-y. Consequently, the banks have been attempting to shore up their deposit bases.
HDFC Bank has increased fixed deposit (FD) interest rates by up to 40 bps. These are applicable for amounts of less than Rs 2 crore. The lender’s website says FDs with a tenure of one year to two years will now fetch a 5.50% — an increase of 15 bps. The tenure of two years, one day to three years will continue to earn 5.50%. The bank has hiked interest rate by 40 bps on tenure between three-year one day to five years to 6.10% from 5.70% earlier.
PNB increased the interest rate on fixed deposits maturing in one year by 20 bps, from 5.30% to 5.50%, while the bank increased the interest rate on fixed deposits maturing in a year and up to two years by 5 bps, from 5.45% to 5.50%.
Private sector lender IDFC First Bank has increased interest rates for fixed deposits below Rs
2 crore and now offers 6.50% on FDs maturing in 2 years 1 day to 749 days and 6.90% on fixed deposits maturing in 750 days. Federal Bank also raised the interest rates on fixed deposits below Rs 2 crore. The bank is now offering interest rates on fixed deposits with maturities ranging from 7 days to more than 75 months that span from 3.00% to 5.75% for the general public and 3.50% to 6.40% for senior citizens.
However, personal finance experts point out that equity has provided long-term returns of 12% or more for the last 20 years. Adhil Shetty, CEO of Bankbazaar observed that on the other hand, returns from FDs average around 5-7%. “Therefore, the rising rates on FDs will not be enough for equity investors to move their funds. However, FD investors who are ready to take risks may move their funds to equity if they wish to remain invested for the long run,” Shetty said.
Chaitali Dutta, founder of AZUKE Personal Finance Advisory, observed that with the compounding effect working on investments, the level of NIFTY at which investors enter does not matter. “Hence, continue with the equity MFs, preferable vis the SIP route, where you are averaging out the purchase price as well,” Dutta said. However, she added that in case, there is an expense coming up within 12 months the funds can be parked in a bank FD or a corporate FD, for a suitable period.