More interest rate hikes by the US Federal Reserve are on the cards since it won’t relent till inflation in the US is brought under control. This has also led to similar moves by central banks globally, to reduce cash flow in the market for buckling demand and curbing price rise. But while higher interest rates are certainly going to make loans and credit as well as funds for business growth a costly affair, they can also ensure better returns on fixed deposits.
Why have Indians largely trusted FDs?
After banks and NBFCs raised interest rates on home loans, before introducing discounts on them for Diwali, financial institutions are now offering higher interest rates on Fixed Deposits. FDs are highly secure investment vehicles, where the funds collect interest for a fixed amount of time, and returns are paid on maturity when the tenure ends. Investors can also get interest payouts monthly, weekly or yearly, as per their requirements. The FDs created at a certain interest rate won’t be affected by fluctuations in the future, which ensures that they get the expected payout.
What’s on offer?
Now major names, SBI, ICICI and HDFC have increased interest rates for their FDs, and this means that 95 per cent Indian households who prefer investing in them stand to benefit.
The State Bank of India has increased interest rates by as much as 80 bps on FDs below Rs 2 crore, which means that those deposits maturing in 46 to 179 days will now fetch 4.5 per cent interest instead of 4 per cent. The interest rates for those FDs maturing in 211 days to a year at the bank have now hit 90 bps.
HDFC Bank on the other hand, has raised rates by up to 75 points on all FDs with a maturity period of 7 days to 10 years. Generally investors will bag as much as 6.25 per cent interest with this move, while senior citizens can get 7 per cent.
ICICI Bank only introduced an interest rate hike that could reach a maximum of 25 bps, which means the highest interest investors could earn on its FD is 6.25 per cent.
Among others Union Bank now offers interest on FDs in the range of 3 per cent to 7 per cent, while Canara Bank is promising up to 7 per cent interest for all investors and 7.5 per cent for senior citizens.
What does this mean for you?
To put things in perspective, a 0.5 per cent hike in interest rates on FDs, can fetch consumers an additional payout of Rs 3,500 on an investment of Rs 1 lakh at maturity for a five-year scheme. The RBI has recently increased repo rates by 50 basis points and will hike them further to tackle food inflation and effects of an extended monsoon.