Home / Money / Personal Finance /  Rising interest rates: Will fixed deposit (FD) rates breach the 7% mark?

Bank fixed deposit also known as term deposit is one of the most popular investment products in our country. Bank FDs are preferred by investors of all ages as they are considered safe and can be easily liquidated whenever needed. Amid the Covid pandemic, during the last 2 years fixed deposit (FD) investors saw their returns declining but things are improving now. With the Reserve Bank of India (RBI) hiking repo rates to tame rising inflation, the banks are too expected to pass on the benefits to customers. Whenever policy rates start going up, the banks start hiking the interest on FD rates.

How FD investors can reap maximum benefit?

Amit Gupta, MD, SAG Infotech says that if you are looking to book an FD for the long term or a big FD is due for renewal, this may not be the right time to do so. “You may not want to book an FD for the long term or renew a large FD at this time if you need to book one for the long term. Long-term rates should not be locked in now. Currently, galloping inflation will lead to a front loaded rate increase. Therefore, it would be ideal to take out short-term auto-renewing FDs of about 6 months each," said Amit Gupta.

He added that i f you have the flexibility, a time horizon of six months to a year is ideal. When you have to choose a tenure, I suggest one year. A higher overall yield could also be achieved by splitting it up into two 6 month FDs with a rollover option, considering we are in a rising interest rate environment.

Vijay Singhania, Chairman, TradeSmart says RBI has been increasing repo rates but fixed deposit rates are not moving in tandem. On the other hand lending rates have kept pace with repo rates. Most banks have hiked interest rates to the tune of 20-30 basis points, which are much lower than repo rates.

According to Vijay Singhania, investors can start locking in fixed deposits presently, at least part of their investments. The next decision can be taken after the Monetary Policy Committee decision which can give us a better idea of the interest rate trajectory.

Will FD rates breach the 7% mark?

Some economists feel there is still room on the upside. So, if that's the case, FD rates might breach the 7% mark. 

“Though the RBI has said that there is a tapering of inflation and rates may not increase at the same pace as was the expectation earlier, some economists feel there is still room on the upside. If that is the case we may come closer to the 7 percent mark on repo rates. Banks in that case can increase fixed deposit rates by 30-40 basis points," said Vijay Singhania.

“The majority of banks have hiked their deposit rates by 20-30 basis points following the repo hike. Depositors can expect another 40-50 bps in rate increases over the next couple of quarters, even if not all of it is transmitted. This would bring the figure closer to 7%," said Amit Gupta.

Best FD rates offered by these banks

IDFC First Bank offers the highest FD interest rate of 6.25% p.a. which is for a tenure of 5 years and above for the general public.  The second highest interest rate is 5.75% p.a. which is offered by Axis Bank and HDFC Bank for a tenure of 5 years and above. The third highest interest rate being offered is 5.60% p.a. which is offered by IDBI Bank for a tenure of 5 years and above.




Sangeeta Ojha
A business media enthusiast. Writes on personal finance, banking and real estate.
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