scorecardresearchAs interest rates rise, investors should explore fixed deposits

As interest rates rise, investors should explore fixed deposits

Updated: 07 Feb 2022, 06:50 PM IST

Following the interest rate hikes on fixed deposits by most banks, it is time to explore short term FDs for a higher interest income

RBI is expected to change its monetary policy and raise interest rates this year. Photo: Hindustan Times

RBI is expected to change its monetary policy and raise interest rates this year. Photo: Hindustan Times

Central banks around the world are geared to cut down on liquidity and are expected to hike the rates now. This is not seen as a good development, at least in the short term, for equity markets. However, investors can surely explore the option of investing in short-term fixed deposits, advise experts.

HDFC Bank raised the interest rates on fixed deposits recently, followed by ICICI Bank that raised the rates starting January 20 this year. State Bank of India (SBI) also raised its interest rates on term deposits starting January 15. Likewise, Bajaj Finance raised the FD rates by 30 basis points on deposits up to 5 crore.

In December 2021, Ujjivan Small Finance Bank raised interest rates on term deposits between 50 to 60 basis points. For 12 months tenure, it hiked the interest rates to 6.5 per cent from 6 per cent earlier. The deposits with a tenure of 19 months and one day to 24 months will now draw an interest of 6.6 percent.  At the same time, the rates were raised by 75 basis points across tenures for senior citizens.


Check the current fixed deposit interest rates of big commercial banks:

Banks1-year rate (%)2-year rate (%)3-year rate (%)5-year rate (%)
ICICI Bank   555.25.45
HDFC Bank    4.955.25.4
State Bank of India (SBI)

                                            (Note: Senior citizens are offered 50 basis points extra)


“When returns on debt funds remain low, banks seem to have an advantage. Even a small increase also matters a lot to many investors, especially the ones who depend on interest as a source of income,” says Harshad Chetanwala, co-founder, MyWealthGrowth


Rate hike by RBI?

A hike in the repo rate by the RBI is expected this year, assert some experts. As a matter of fact, interest rates are set to rise around the world this year. If they rise rapidly, the markets could stay volatile. Even conservative hybrid funds and equity savings schemes are likely to bear the brunt in the short term. 

But in the wake of the inflationary pressures, the central bank may maintain the status quo on key policy rates in its next bi-monthly economic policy to be announced on Thursday,  first after the Union Budget 2022-23 was presented in the Parliament on February 1.

However, some experts are of the opinion that RBI’s monetary policy committee (MPC) may change the policy stance from ‘accommodative’ to ‘neutral’ and even change the reverse-repo rate as part of the liquidity normalisation process.

G Chokkalingam, Founder of Equinomics Research & Advisory cautions that despite the proposals to reverse the monetary policy around the world, which India’s central bank is also likely to follow suit — its impact will be muted. “There are expectations of increase in interest rates by 25 to 50 basis points in the next three four months. So, investors needn’t worry too much or change their investment strategy because of this,” says Mr Chokkalingam. 

However, small investors may want to stay invested in equity, but if they decide to reallocate their portfolio, they could bear in mind that the fixed deposit (FD) interest rates have risen, fetching them marginally higher returns than earlier. 


First Published: 07 Feb 2022, 06:50 PM IST