Hyderabad: Interest rates on fixed deposits are quite disappointing in recent times. We agree that the macroeconomy thrives on low-interest rates and it has been happening for the past two years. But now, inflation is wavering around 6% whereas popular banks are providing interest rates on fixed deposits approximately between 4.9% and 5.1% before tax for the last one or two years. Hence, actual returns after-tax are dismally low.
Under such circumstances, fixed deposits are unlikely to contribute to investment growth and instead devalue the money. Now, interest rates are rising, but haven't reached the expected levels. If inflation shoots up, it cuts down the net earnings. This makes life difficult for interest-dependent senior citizens. The drop in income over interest amidst the rising cost of living could have serious implications.
The largest public sector banks are offering interest rates between 4.9% and 5.50% for above five-year terms. For example, Canara Bank offers 5.50 per cent interest on deposits for five to ten years and six per cent for senior citizens. Rates on short-term deposits for up to three years are anywhere between 4.9 per cent and 5.3 per cent. Some banks offer up to 5.45 per cent. While post offices also offer an interest rate of 5.5 per cent for one, two, and three-year term deposits. It offers a maximum interest rate of 6.7 per cent on five-year deposits.
It is almost the same with private banks. Some banks offer up to 6.25-6.5 per cent. For example, IndusInd Bank has announced interest rates of 6.5 per cent on deposits between two years and 61 months and 7 per cent for senior citizens. Most banks pay above 5.75 per cent. Long-term deposits are expected to be made for higher interest rates. If you are looking for a slightly higher interest rate in the current circumstances, you can look at private banks. Now, that interest rates are rising, do not make long-term deposits. If interest rates are low, short-term deposits should be selected. Deposit them for a longer period once rates have risen. Rates are more likely to increase in 2022.
Smaller banks...
Saving money in large banks is almost risk-free. HDFC Bank and ICICI Bank have announced 5.45% -6.3% interest on deposits above five years. SBI interest rates for the same period ranged from 5.5% to 6.3%. Smaller banks offer higher interest rates to attract depositors. For instance, Suryodaya Small Finance Bank is offering 7.5 per cent interest to senior citizens for three years. Depositors need to be more careful when choosing small banks. Do not make deposits in banks with high NPAs. Whereas, deposit insurance is available for less than Rs 5 lakhs in banks.
Company deposits...
Those who rely on interest for income can also look at fixed deposits offered by financial institutions. Prefer companies that boast AAA ratings. HDFC Limited is offering 6.8 per cent interest for 99 months. An addition of 25 basis points for senior citizens. AAA-rated Shriram City offers 7.75 per cent interest for 60 months and 8.05 per cent interest for senior citizens. There is a risk in company deposits since there is no deposit insurance. However, those looking for long-term investments better look for equities, mutual funds, corporate bonds and real estate over fixed deposits, says Adhil Shetty, CEO of Bank Bazaar.
