A fixed deposit is one of the simplest and easiest ways to save money. No wonder FDs has been the darling of the Indian masses since ages. With no risk to capital, fixed deposits is a de facto saving instrument for people especially for retired people or people who are nearing retirement.
Recently, major banks like SBI, HDFC Bank and Kotak Mahindra Bank have cut their FD interest rates. SBI has sharply cut the interest rate on fixed deposits between from 45 days to 10 years. The public sector bank has cut rates by 50-75 basis points.
In the previous article, we had shown the current FD interest rates of some of the banks. If you haven’t read that, read it here.
As a result of the declining interest rate, it has become imperative to look at different options or figure out the best possible way to get the most from your money. Here are some of the ways and alternative investment options that can help:
Here are some of the things that you can do, now that the interest rates are moving south.
In many banks, the interest rates in fixed deposit are not cut uniformly or across all the tenures. It is even possible that the tenure may have been extended in some time horizon. In this aspect, you can select the time horizon where the interest rate have been left unchanged or have been hiked.
Just for example, Kotak Bank deposits with premature withdrawal offer 6.75% interest on FDs maturing between 271 Days to 363 Days. While the interest rate of 364 days to less than 3 years is 7%.
Smaller banks offer higher interest rates than larger private or public sector banks. It is because they rely on deposits to lend it to their loan takers. As a result, they offer higher interest rate to attract retail customers. E.g., Jana Bank offers an interest rate of 8.50% on their one-year deposits.
However, these finance banks are not widely spread and are concentrated in a few areas. This can be one limitation of these banks. But with the introduction of internet banking, the need for physical bank branches have reduced to a large extent.
You may hesitate keeping your deposit in the small finance banks for the fear of the bank being shut down. But, the deposits in the small finance banks up to Rs.1 lakh is insured just like any other bank.
Other than banks, non-banking finance institutions and companies such as Bajaj Finance, Mahindra Finance offer fixed deposits. These company FDs are similar to bank FDs. It gives higher interest rate, nearly 1-3% higher than bank FDs. However, these FDs also come with higher risk than other categories of fixed deposits. Unlike bank deposits, it also comes with default risk. That means that in case of bankruptcy, the company may defer to pay interest or the principal. Hence, it is important to select companies that are well known and have a good track record. One can apply for company FDs from the company’s website or any aggregator website.
In the last few months, the interest rates on post office saving deposits have also come down. However, it pays tad higher interest rates than bank deposits. Over 1 to 3 years, the post office FDs is currently offering a rate of interest of 6.9% which higher than some of the big bank FDs. In the 5-year horizon, post office time deposits are offering 7.7% while SBI is giving 6.5% to its customers. Other attractive feature of the post office saving deposits is the sovereign guarantee on both capital and interest earned.
While there are options such as non-convertible debentures and debt funds, the main key or the deciding factor is the safety of capital. The above mentioned options are good options if you cannot take risk and want bank fixed deposit like features.Tags: FD, fixed deposit, time deposits, bank FD, company fd, post office time deposits, small finance bank FD
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