Banks are introducing special limited-period offers of higher interest rates on fixed deposits to mop up money as the growth in bank deposits has not been able to keep pace with the increasing credit demand.
While the interest rates offered by some banks for the special tenor is touching 7% for regular citizens, small finance banks are already offering above 7.50% on their deposits. Adhil Shetty, CEO, BankBazaar.com, says depositors can make the most of this situation by laddering their deposits. “They can take advantage of high rates on special tenors, but avoid locking-in for longer durations because there is still headroom for the rates to rise,” he says.
Should you invest in special Fds?
While investors such as senior citizens who are risk-averse would want to park their money in these special deposits to earn more on their savings, they must note that these schemes offered by the banks do not allow premature withdrawal facility. Gaurav Aggarwal, senior director, Paisabazaar, says some banks may also set higher minimum deposit amounts for their special fixed deposit schemes. “Thus, consumers should also factor in their liquidity requirements and ensure to compare the interest rates offered by other banks, especially by small finance banks and other private sector banks, before booking special FD schemes,” he says.
If the inflationary trend persists, experts say deposit rates are likely to rise. “We are expecting deposit rates to keep rising this financial year. Therefore, depositors can set aside some liquidity that can be used to lock-in to higher rates. If deposit rates peak around 8% depositors can lock-in to those rates for the longest possible tenors,” says Shetty.
Park cash in shorter tenures
As banks are likely to offer higher FD rates to attract more deposits, individuals should park their money in fixed deposits of shorter tenures, preferably between one and two years, and avoid the auto-renewal option. Aggarwal says these might allow the depositors to renew their FDs at higher interest rates. “However, they should not defer FD opening in the anticipation of higher FD rates in the future. Doing so would lead them to park their surplus in savings accounts offering lower interest rates, which might incur them opportunity cost,” he says.