Fixed Deposit Rates Falling But Still Extremely Attractive
After the Reserve Bank of India (RBI) India’s central bark embarked on an ambitious interest rate easing cycle since October, slashing official interest rates by 350 basis points, Fixed Deposit (FD) rates have begun falling.
Most banks, both state owned and private sector banks have either cut their FD rates or signalled that a cut is imminent. At the start of December government owned State Bank of India was offering an interest rate of 10.5 per cent on a fixed deposit with a 1000 day maturity. That rate was lowered to 10 per cent in mid December and just two weeks later the rate that SBI offers for 1000 day FD’s is now only 9 per cent.
There are however some good returns still available for maturities of between one and three years. ICICI Bank’s interest rate for FD”s of between 590 days and 890 days is still at 9.75 per cent, whilst HDFC Bank’s rate for 20 month deposits stands at 9.65 per cent. Banks are looking for funding for a duration of between one and three years and are therefore offering attractive interest rates for customers who are willing to lock up deposits for that period.
A senior General Manager with ICICI Bank, Maninder Juneja says of FD rates “A bank first decides on the tenure where it would need the maximum money and FDs of that particular tenure are branded and sold accordingly.”
Fixed Deposits are extremely attractive right now and make a compelling investment option with December’s inflation figures coming it at just over 5 per cent, real interest rates are positive and it is possible to lock those positive rates in for a couple of years with no real default risk whilst equity markets continue to languish in the short term and bond markets which have rallied substantially suffer from price risks, should the RBI reverse its interest easing cycle suddenly, though it has to be said that is highly unlikely.
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