You are using an older browser version. Please use a supported version for the best MSN experience.

FD rates revised. What should you do?

LiveMint logoLiveMint 03-05-2017 Vivina Vishwanathan

Recently, some major banks revised their interest rates on bank fixed deposits (FDs). State Bank of India, the country’s largest lender, on 29 April, cut interest rates on FDs by 25-50 basis points (bps) in select maturity baskets. For instance, interest rates on 2 years to less than 3 years has now been reduced from 6.75% to 6.25%, while interest rate on 3 years to 10 years basket has come down to 6.25% from 6.50%. One basis point is one-hundredth of a percentage point.

On 23 April, Bank of Baroda, the third largest public sector bank in terms of assets, had also reduced its interest rates in the smaller tenure FDs while increasing interest rates for the longer duration deposits. For instance, it reduced the interest rate from 7.00% to 6.90% for 1-year tenure. However, in the 3-year to less than 5-year tenure, it has increased the FD rates from 6.50% to 6.75%.

Santosh Sharma/Mint

Meanwhile, on 28 April, Axis Bank Ltd increased interest rates in select maturity baskets by 25 bps. In the 12 months to less than 18 months maturity basket, the bank has increased the interest rate to 6.50% from 6.25%. But this is applicable for amounts of Rs5 crore and above. The bank has left the rates for smaller amounts unchanged as of now.

Meanwhile, SBI has left deposit rates for amounts between Rs1 crore and Rs10 crore unchanged. The interest rates for these range between 3.75% and 4.25%.

Kotak Mahindra Bank Ltd has also increased interest rates in the 1-year to 3-year maturity basket from 6.25% to 6.50% for value up to Rs1 crore.

The banks have increased rates for some long duration FDs and decreased for short-term maturity baskets. “This is happening due to high liquidity in the short-term buckets. Long-term deposits, however, depend on the credit needs,” said Hatim Broachwala, a Mumbai-based banking analyst at Nirmal Bang Institutional Equities.

How long will the liquidity remain? “Interest rates will remain soft till liquidity goes away. It is difficult to give the duration. Currently, liquidity remains sticky,” said Broachwala.

Apart from this, rate revision also depends on banks’ individual portfolios. “Banks make changes depending on the mismatch in the portfolio in each deposit basket. For instance, SBI may have increased flow whereas Axis Bank may not have enough flow. It depends on liquidity, CASA (current account and savings account) and the kind of lending growth they are looking at,” said Pritesh Bumb, banking analyst, Prabhudas Lilladher Pvt. Ltd. “This kind of revision happens in some of the cycles. There is nothing much to read in it,” he added.

In the past couple of weeks, interest rates of some bigger banks have changed. So, if you are looking to invest in FDs, do check the rates carefully for the tenure you want to invest for. “You don’t need to continue maintaining FDs as this is a falling interest rate scenario. However, if you still want to invest here, look for the maturity basked with a better interest rate. But do remember that you carry the risk of reinvestment,” said Surya Bhatia, a New Delhi-based financial planner.

What is the alternative to FDs? “Instead of FDs, you could consider investing in short-term and ultra short-term funds,” said Bhatia.

Also, since some new banks have been launched recently, you have the option of getting higher interest rates on FDs from them. “You can look at investing in FDs in smaller or newer banks. However, don’t compromise on the quality of the bank where you open an FD,” said Bhatia.

If you are still interested in investing in FDs, to compare interest rates on offer, you could take the help of online aggregator platforms as well.

More From LiveMint

image beaconimage beaconimage beacon