- Date : 11/07/2023
- Read: 3 mins
The FD rates are increasing since the RBI started hiking the repo rate from May 2022. Should you invest now or later? Check top 3 points before investing.
- You can get up to 8.5–9.36% p.a. FD rates by investing in fixed deposits of some banks/NBFCs.
- Though the repo rate increased by 250 bps in 2022, all banks haven't passed on benefits to depositors.
- Invest in FDs in laddering strategy and different tenures (5, 2, and 1 years).
FD rates are nearing an all-time high level. Some banks/NBFCs offer 8.5–9.36% annual interest rates. Should you invest now or later? To make a better decision, keep scrolling.
Why Have FD Rates Gone Up Significantly?
The RBI hikes the repo rate to discourage commercial banks from lending. If the demand for loans remains robust, commercial banks will increase their fixed deposit (FD) rates to attract more deposits to finance lending activities. That's why an increase in the repo rate usually increases FD rates. The RBI increased the repo rate from 4% to 6.5% last year. The FD rate has also started increasing from that time on.
Should You Invest In Fixed Deposits At Current FD Rates Or Wait For Them To Increase Later?
RBI has increased the repo rate by 250 basis points. SBI (the largest lender in India) has increased its 2-year FD rates by just 190 basis points. SBI hasn't passed on the full benefits to the depositors. Credit demand in the Indian economy is still considerably high. So, experts believe that banks/NBFCs are likely to increase FD rates even if the RBI doesn't increase repo rates further. The FD rates are quite close to their highest levels. Even if you don't lock in all your available funds in FDs, at least lock in a part of them at the current rate for a longer period.
Top 3 Points To Keep In Mind While Investing In FDs
1. Adopt FD Laddering Investment Strategy
Suppose you want to lock in Rs. 25 lakh in FDs at the current rate. Invest them in three parts:
Invest 60–75% in 5-Year FDs
You may lock in around Rs. 15–18 lakh in FDs with 5-year tenures.
Split Rest 25–40% in 1-Year And 2-Year FDs
You may invest Rs. 3–5 lakh each in 2-year and 1-year FDs.
2. Spread Your Deposits Among Multiple Banks And NBFCs
Invest around 60–70% of your funds in FDs in banks identified by the RBI as systemically important, such as SBI and others.
Invest the remainder in banks/NBFCs offering higher FD rates.
3. Don’t Liquidate Old FDs Prematurely
Higher FD rates are alluring. This is why many people tend to liquidate old FDs prematurely and invest them in new FDs. As a general principle, avoid premature liquidation of older FDs. You can do it only if the older FDs have a long time to mature.