Bank of Baroda is the latest to join the list of banks that hiked rates on its fixed deposits (FDs) with effect from March 22, 2022.
The public sector lender has upped its FD interest rates from 2.80 per cent to 5.55 per cent for the deposits maturing within a week to 10 years.
Accountholders with this bank can now avail of an interest rate of 2.80 per cent on FDs maturing in seven to 45 days. The interest rates are, however, 3.70 per cent and 4.30 per cent on FDs with maturity periods ranging from 46 days to 180 days and those maturing between 181 days and 270 days. However, the FDs maturing in 271 days or more but less than a year will beget an interest rate of 4.40 per cent.
Before this, other banks including the State Bank of India (SBI), HDFC Bank, Axis Bank, Induslnd Bank, IDBI Bank, etc. have increased the interest rates on various FD tenures. The Central Bank of India and UCO Bank were the first in line to revise their FD interest rates on deposits less than ₹2 crores with effect from February 10, 2022.
The interest rates on senior citizen accounts are higher than those earned by normal depositors. Vineet Patawari- Cofounder CEO StockEdge & Elearnmarkets said, “As we all know, fixed deposits are the most common and most popular investment vehicle in which Indians consider investing their money. During the Covid pandemic, many banks such as ICICI, HDFC, SBI raised interest rates on their fixed deposits. The senior citizens were one of the biggest beneficiaries as these banks offered additional interest rates than the general categories. However, two of these banks are closing their particular FD before March 31, which means the eligible individuals won't be eligible to apply in these banks' schemes after March 31. Since these FDs provide additional interest rates, I would suggest that eligible individuals should invest in these special Senior Citizens Fixed Deposit Schemes in these uncertain times before March 31. Additionally, due to geopolitical tensions, the stock market is volatile, so these FDs are the safest investment vehicle, especially for senior citizens.”
The hike in FD interest rates came after the Reserve Bank of India (RBI) announced its intent to keep the repo and reverse repo rates unchanged at its bi-monthly monetary policy review announced in February 2022.
Time to Rise
The increase in FD interest rates is being hailed as a good sign of economic recovery by many investors stuck with decadent interest rates for the past couple of years. As banks relentlessly cut FD interest rates over the past couple of years, many investors had shifted to other fixed-income instruments, thus, relegating the importance of FDs to nothing more than savings accounts deposits.
Historical references to interest rates show how the short to medium interest rates are the first to rise post rebounding of the interest rate cycle from the bottom. It takes a little more time for long-term FDs to show appreciation in their interest rates.
Though the medium rates are climbing gradually, it does not make sense to lock your deposits in long-term FDs. Whether you are opening a new FD account or renewing an existing one, you must aim for a short-term deposit so that you can extract the money to use it whenever required or invest the maturity amount in mutual fund instruments that earn higher returns. Investments in FDs are usually preferred by risk-averse investors who want their investments to be completely risk-free. They can, therefore, deposit the money for a short period and then utilize the same to invest in debt instruments that earn higher returns compared to FDs.