Rising interest rates on fixed deposits are like a silver lining in the dark cloud. After Russia invaded Ukraine, financial markets tumbled, investors are spooked and even cryptocurrency markets faced the heat. But fixed income instruments such as fixed deposits turn out to be not only safe but they offer promising returns too.
Now, HDFC Bank is offering 5 percent return per annum on its one-year FDs that further rises to 5.2 percent per annum for tenure between two to three years, and 5.45 percent for deposits with tenure of more than three years. Likewise, SBI now offers 5.1 percent for one-year deposits which further rises to 5.2, 5.45 and even to 5.5 depending on the tenure.
Even some banks such as Yes Bank, Ujjivan Small Finance Bank (SFB), Equitas and Utkarsh SFBs, offer more than 6 percent on their long-term deposits.
| Bank | Return on 1-yr deposit (%) |
| SBI | 5.1 |
| HDFC Bank | 5 |
| Yes Bank | 5.75 |
| SBM Bank India | 7.1 |
| Ujjivan SFB | 6.5 |
And not only banks, but the rates of company FDs are also on a rise. Financial experts advise to diversify your fixed income investment into banks and company FDs that can help you fetch good returns. Although company FDs offer a higher interest rate, but you need to do your diligence before investing your money.
Fixed deposit laddering
One good way to earn high returns is through fixed deposit laddering which is one of the excellent options to ensure a high return on FDs while there are expectations of further increase in interest rates.
“We often tell our clients to devise their own fixed deposit laddering strategy by staggering their fund with different FDs across multiple maturities,” says Deepak Aggarwal, a Delhi-based financial advisor and chartered accountant.
He further elaborates, “Let’s take an example that you want to invest ₹3 lakh, you can divide it into three FDs with different maturity periods i.e., one, two and three years. After maturity, you can either use the money, or reinvest the corpus into a new FD that appears suitable then. One can also diversify between different banks, and even use different amounts while creating an FD laddering strategy.”
This is how the FD laddering strategy works: Suppose FD rates continue to increase in future, then you may allocate a part of corpus to an FD that offers a higher rate on each maturity to maximise your returns in the long term.
Not to mention that if you invest in FDs of different banks, you also stand to receive insurance benefit (via DICGC) of up to ₹5 lakh in each bank.
The underlying philosophy behind FD laddering is that one should not wait for a rate hike to invest in term deposits since it can’t be predicted as to when would the interest rates go up. “What if there are multiple hikes in near future. But unless you invest your money, you continue to forego the return. So, one must optimise their funds and try to maximise their returns,” adds Aggarwal.