Interest rates on fixed deposits (FDs) have been at multi-year lows, with banks and NBFCs having slashed rates over the last two years. However, with the central bank now balancing the scales between economic growth and inflation, things could change, sooner or later. Whenever the interest rate cycle makes a U-turn from the bottom, typically the short to medium term interest rates rise first. Long-term interest rates take longer to go up. In such a scenario, some smart moves can help FD investors make the best of the situation. Here are 5 ways investors can enhance returns on their FDs.
If you are planning to book an FD now or are looking to renew your existing FD, then it will be better to go for shorter term deposit, say one year or lower, so that your deposit is not locked at a lower rate for too long. Whenever the short to mid-term rates rise, you can start increasing the tenure of the FD accordingly.
If your deposit is up for renewal in a scenario when the interest rate cycle is close to its lowest point, you could be deep in financial stress. However, you can avoid this by creating an FD ladder. To do this, just divide one big FD into smaller FDs, and book these for distinct tenures. You can do this in a way such that one FD matures each year.
For instance, if you have a Rs 5 lakh FD, you can divide it into 5 parts and book 5 FDs of different tenures of 1 year, 2 years, 3 years, 4 years and 5 years. After one year, when the one-year tenure FD matures renew it for 5 years. After two years your FD with 2-year tenure will mature so you can renew it again for next 5 years. Now repeat this exercise each year and your ladder will be ready. This will ensure that not all of your deposits are locked at the lowest interest rate at the same time and your average return is on the higher side.
Also read: 5 things to know about tax-saving FDs
Many banks and non-banking financial companies have started offering floating rate fixed deposits. The interest rate on such a deposit is linked to a benchmark and the interest rate moves in tandem with the movement in the benchmark rate. These are a good idea if you want to avoid taking any chances against the fluctuating interest rate cycle and want to invest for the long-term.
Indian Overseas Bank, for example, offers the floating rate FDs for 3-10 year tenures. It has kept the daily average of last six months of 5-year G-Sec rate and 10-year G-sec rate as benchmarks for 3-5 years and 5-10 years tenures, respectively. The 10-year G-sec yield on September 24, 2021, as per the data given by RBI, was 6.21%, which is much better than the FD rates of most large banks. If you are not a senior citizen, then the best interest rate that you can get from a big bank will be around 5.25-5.5%. For instance, SBI is offering an interest rate of 5.40% on FD with tenure above 5 years to 10 years.
So, the floating rate option appears to be giving better interest rate of 6.21% (if the 6 months average is also the same) even in the current scenario. Once the overall interest rate scenario changes and rates start moving up, then depositors will get the real benefit of a floating rate FD as the interest rate on these FDs will also go up.
India’s consumer inflation eased to a five-month low of 6.71% in July on the back of a moderation in food inflation, firming up expectations that the Reserve Bank of India (RBI) may go for a softer increase in policy rates at its end-September review.
Huawei Telecommunications (India) chief executive officer Li Xiongwei told a Delhi court on Friday, “I am a Chinese (national) and not a terrorist,” apparently borrowing a line from a Shah Rukh Khan movie.
Automobile companies are gearing up for a record number of launches in the coming months as the semiconductor shortage that has plagued the industry eases.
(Your legal guide on estate planning, inheritance, will and more.)
Download The Economic Times News App to get Daily Market Updates & Live Business News.
ETPrime stories of the day
EV vs. CNG-petrol cars: BluSmart, Ola, Uber, and the future of the cab-hailing business in numbers
RIL, other refiners pitch for deregulation of domestic gas. What does free pricing mean?
Startups, want a Sequoia cheque in a funding winter? Here’s what Rajan Anandan will check out first.
1Digital currency is more than just UPI, IMPS: How it can change your money transactions
2Missing ITR verification deadline can cost you Rs 5000 despite filing ITR on time
3What to do if you have missed the ITR filing deadline
4Received money for covid-19 treatment from employer, relatives? Proofs needed to claim tax exemption
5CBDT issues conditions, forms to get income tax exemption on covid 19 help money
Founder, Blocktickets
Founder, Yunometa
Founder & CEO, bitsCrunch
Co-Founder & Director, Buoyant Capital
MD and Co-Founder, MemeChat
Founder & CEO, 5ire
Staff Writer, NerdWallet
CEO and Co-Founder, Vauld
CEO and Co-Founder, Defy
Provide valid query here
Provide valid Name
Provide valid Email ID
Provide valid Mobile Number
Your query has been submitted.
Got more Queries ?
1Who has to file ITR
2Collect Documents/Information
3Check ITR form
4Login to file ITR
5Fill the Form
6Claim Deductions
7Pre-validate Bank Account
8ITR Verification
9Track Intimation Notice
10Track Refund
All Mutual Funds
Top Tax Saving Mutual Funds
Better Than Fixed Deposits
Low Cost High Return Funds
Best Hybrid Funds
Best Large Cap Funds
SIP’s starting Rs. 500
Top Performing Mid Caps
Promising Multi Cap Funds
Top Rated Funds
Top Performing Index Funds
Trending Now
Popular Categories
Hot on Web
In Case you missed it
Top Calculators
Top Searched Companies
Top Definitions
Top Commodities
Top Prime Articles
Top Story Listing
Top Slideshow
Top Trending Topics
Top Videos
Top Performing MF
Popular Articles
Most Searched Articles
Trending Articles
Find this comment offensive?
Choose your reason below and click on the Report button. This will alert our moderators to take action
Reason for reporting:
Your Reason has been Reported to the admin.
Log In/Connect with:
Will be displayed
Will not be displayed
Will be displayed
To read full story, subscribe to ET Prime
₹34 per week
Billed annually at ₹2499 ₹1749
Super Saver Sale – Flat 30% Off
On ET Prime Membership
–
–
–
Subscribe Now
(Credit card mandatory)
You can cancel your subscription anytime
–
–
–
Subscribe Now
(Pay Using Netbanking/UPI/Debit Card)
₹399/month
Monthly PLAN
Billed Amount ₹399
No Trial Period
₹208/month
(Save 49%)
Yearly PLAN
Billed Amount ₹2,499
15 Days Trial +Includes DocuBay and TimesPrime Membership.
₹150/month
(Save 63%)
2-Year PLAN
Billed Amount ₹3,599
15 Days Trial +Includes DocuBay and TimesPrime Membership.
Quarterly
$13.99
7 Days Trial
Yearly
(Save 40.0%)
$33.99
15 Days Trial
Get ET Prime for just ₹2499 ₹1749/yr
Exclusive Economic Times Stories, Editorials & Expert opinion across 20+ sectors
Stock analysis. Market Research. Industry Trends on 4000+ Stocks
Stories you might be interested in