Anulekha Ray
9 Oct 2023
Since deposit rates are likely to fall, now is the time to invest in long term FDs.
The RBI Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5% for the fourth time in a row, according to RBI Governor Shaktikanta Das. The rate-setting panel also left the policy stance unchanged with focus on withdrawal of accommodation.
How will this impact your investments such as fixed deposits (FDs)? Interest rates on FDs have gone up in the past year, but the era of rising rates is almost over, with some prominent banks already reducing rates on fixed deposits of specific tenures.
What should FD investors do now ?
Considering most macro economic indicators, experts believe any significant hike in FD rates is highly unlikely in the near future. "The FD rates are at their peak and are not expected to rise any time soon," says Adhil Shetty, CEO, Bank Bazaar. Several prominent banks have already started reducing interest rates of fixed deposits for certain tenures. For instance, HDFC Bank has lowered interest rates of two special FD schemes from 1 October 2023. Axis Bank, Punjab National Bank, Union Bank of India, DCB Bank and Indusland Bank are among others that have cut rates recently.
Hinting at what awaits FD investors in the future, Anshul Gupta, Co-Founder and CIO of Wint Wealth, says, "From retail investors' standpoint, we are at the peak of the interest rate hike cycle and banks are likely to reduce interest rates starting from the second quarter next year."
Book long-term FDs
"FD investors should be prepared for rollovers to happen at lower than current rates if they are invested in deposits that are more than one year in tenure," says Mayank Bhatnagar, COO, Finedge . Though FD interest rates have started dropping, experts do not expect a significant drop in deposit rates in the near term. Shetty explains, "Liquidity continues to be tight and except, for marginal readjustments, the FD rates are expected to hold for the near future."
Adds Raghvendra Nath, MD of Ladderup Wealth Management: "Unless the RBI changes its stance on liquidity and inflation on liquidity and inflation, and undertakes a sustained reduction, banks will not reduce FD rates." Suggests Gupta: "Over the next three to six months, retail investors should lock their funds in long-term fixed deposits at higher interest rates. Depending on the goal and time frame of their investment, they can stagger this investment into a few smaller FDs across different commercial and small finance banks, as well as NBFCs."
If you want to book a long - term FD at a high interest rate, you may start booking them now. "While many banks have reduced their FD rates, some small finance banks are still offering FD yields of 8% per annum and above for 2-3 year tanures.
Thus, depositors seeking higher returns from fixed income instruments should book these high-yield FDs after factoring in their investment horizons.
Locking these high-yield FDs now should allow depositors to earn higher interest income after the reversal of the interest rate regime," says Naveen Kukreja, Co-Founder and CEO, of Paisabazaar.
"We expect the rates to be reasonably lower towards the end of first quarter of next financial year. This is a grest time to lock in at higher rates and book long-term FDs," says Saurabh Jain, Co - Founder, Stable Money.